Efficiency Aspects of Profit‐Sharing Systems versus Wage Systems

Some theoretical and practical bases for choosing between wage and profit‐sharing reward structures are considered. The analysis suggests that simple wage systems have theoretical advantages over simple profit‐sharing systems with regard to the optimal provision of labor effort. The opposite conclusion occurs with regard to the optimal use of capital. Furthermore, simple profit‐sharing systems are better able to deal with certain practical problems that arise in large‐scale agricultural production. Finally, a complex type of profit sharing exists which has the same theoretical advantages as the wage system plus practical advantages as well.