Journal article

Authors list: Bannier, Christina E.; Feess, Eberhard; Packham, Natalie; Walzl, Markus

Publication year: 2021

Pages: 1-27

Journal: Journal of Institutional and Theoretical Economics

Volume number: 177

Issue number: 1

ISSN: 0932-4569

eISSN: 1614-0559

DOI Link: https://doi.org/10.1628/jite-2020-0044

Publisher: Mohr Siebeck

Abstract: 
We examine the effect of imperfect labor market competition on the efficiency of compensation schemes in a setting with moral hazard and risk-averse agents who have private information on their ability. Two heterogeneous firms compete for agents by offering contracts with fixed and variable payments. When competition is low, low-ability agents are underincentivized, exerting too little effort. When competition is high, high-ability agents are overincentivized and bear too much risk. For intermediate competition, contracts are second-best. An equilibrium where both firms are active exists only when the least-cost separating allocation is interim efficient.

Harvard Citation style: Bannier, C., Feess, E., Packham, N. and Walzl, M. (2021) Differentiation and Risk Aversion in Imperfectly Competitive Labor Markets, Journal of Institutional and Theoretical Economics, 177(1), pp. 1-27. https://doi.org/10.1628/jite-2020-0044

APA Citation style: Bannier, C., Feess, E., Packham, N., & Walzl, M. (2021). Differentiation and Risk Aversion in Imperfectly Competitive Labor Markets. Journal of Institutional and Theoretical Economics. 177(1), 1-27. https://doi.org/10.1628/jite-2020-0044