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
2020-01-01
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.File | Dimensione | Formato | |
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