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Employment with Alternative Incentive Schemes when Effort is Not Verifiable
Author(s) -
Meccheri Nicola
Publication year - 2005
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/j.1467-9914.2005.00290.x
Subject(s) - unemployment , incentive , economics , pareto optimal , involuntary unemployment , pareto principle , verifiable secret sharing , labour economics , microeconomics , efficiency wage , macroeconomics , operations management , computer science , multi objective optimization , set (abstract data type) , machine learning , programming language
. This paper compares macroeconomic results related to efficiency wages, contracts with bonus and tournaments in a framework with unverifiable effort. When effort is fully observable, both contracts with bonus and tournaments, unlike efficiency wages, solve the incentive problem without generating involuntary unemployment. Only tournaments, however, allow attainment of the Pareto optimal employment level. If effort is not fully observable, previous results must, to some extent, be reconsidered. Contracts with bonus also produce involuntary unemployment, while tournaments, in addition to continuing to produce a higher level of employment, generate involuntary unemployment only if a shirker who is not caught has some probability of winning.