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AGENT COMPENSATION AND THE LIMITS OF BONDING
Author(s) -
EATON B. CURTIS,
WHITE WILLIAM D.
Publication year - 1982
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1982.tb00351.x
Subject(s) - imperfect , compensation (psychology) , economics , microeconomics , control (management) , bond , zero (linguistics) , labour economics , business , finance , psychology , philosophy , linguistics , management , psychoanalysis
Agents in positions of trust may engage in malfeasance which is difficult to detect. This paper develops a model in which employers seek to control malfeasance by paying wages contingent on imperfect monitoring and agents may be required to pay entry fees or post bonds. We conclude that entry fees which exceed agents' assets are ineffective in controlling malfeasance. As a result, conditions exist in which it is optimal to pay agents more than their opportunity cost. Such conditions lead to an excess supply of applicants and allow employers to engage in discrimination at zero cost to themselves.