In a simple model with hidden action, we analyze the role of nonwage benefits (perks) in the structure of incentive-compatible contracts. We show that the provision of perks depends on the size of the agent’s reservation wage. The two main results are: (a) for low levels of the reservation wage, perks are never provided by the principal, but the agent may decide to buy, as own consumption, a certain amount of private benefits; (b) for high levels, the principal may find it profitable to offer perks, and the equilibrium quantity increases more than proportionally with the reservation wage, up to the first-best level.

Who pays for workplace benefits?

Maurizio Caserta;Livio Ferrante
;
Francesco Reito
2020

Abstract

In a simple model with hidden action, we analyze the role of nonwage benefits (perks) in the structure of incentive-compatible contracts. We show that the provision of perks depends on the size of the agent’s reservation wage. The two main results are: (a) for low levels of the reservation wage, perks are never provided by the principal, but the agent may decide to buy, as own consumption, a certain amount of private benefits; (b) for high levels, the principal may find it profitable to offer perks, and the equilibrium quantity increases more than proportionally with the reservation wage, up to the first-best level.
moral hazard, perks, reservation wage
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/20.500.11769/374948
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact