16,023 research outputs found
Fairness Is an Emergent Self-Organized Property of the Free Market for Labor
The excessive compensation packages of CEOs of U.S. corporations in recent
years have brought to the foreground the issue of fairness in economics. The
conventional wisdom is that the free market for labor, which determines the pay
packages, cares only about efficiency and not fairness. We present an
alternative theory that shows that an ideal free market environment also
promotes fairness, as an emergent property resulting from the self-organizing
market dynamics. Even though an individual employee may care only about his or
her salary and no one else's, the collective actions of all the employees,
combined with the profit maximizing actions of all the companies, in a free
market environment under budgetary constraints, lead towards a more fair
allocation of wages, guided by Adam Smith's invisible hand of
self-organization. By exploring deep connections with statistical
thermodynamics, we show that entropy is the appropriate measure of fairness in
a free market environment which is maximized at equilibrium to yield the
lognormal distribution of salaries as the fairest inequality of pay in an
organization under ideal conditions
Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision
We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of
the model under standard assumptions. Yet, we also find evidence for reciprocal behavior. Our data analysis shows, however, that it does not pay for the employer to solely rely on the reciprocity of employees
Deferred compensation and gift exchange: an experimental investigation into multi-period labor markets
This paper examines the relationship between firmsā wage offers and workersā
supply of effort using a three-period experiment. In equilibrium, firms will offer deferred
compensation: first period productivity is positive and wages are zero, while third period
productivity is zero and wages are positive. The experiment produces strong evidence
that deferred compensation increases worker effort; in about 70 percent of cases subjects
supplied the optimal effort given the wage offer, and there was a strong effort response to
future-period wages. We also find some evidence of gift exchange; worker players
increased the effort levels in response to above equilibrium wage offers by a human, but
not in response to similar offers by a computer. Finally, we find that firm players who are
initially hesitant to defer compensation learn over time that it is beneficial to do so
Pension Reform and Labor Market Incentives
This paper investigates how parametric reform in a pay-as-you-go pension system with a tax benefit link affects retirement incentives and work incentives of prime-age workers. We find that postponed retirement tends to harm incentives of prime-age workers in the presence of a tax benefit link, thereby creating a policy trade-off in stimulating aggregate labor supply. We show how several popular reform scenarios are geared either towards young or old workers, or, indeed, both groups under appropriate conditions. We also provide a sharp characterization of the excess burden of pension insurance and show how it depends on the behavioral supply elasticities on the extensive and intensive margins and the effective tax rates implicit in contribution rates.Pension reform, Retirement, Hours worked, Tax benefit link, Actuarial adjustment, Excess burden
Fairness, Price Stickiness, and History Dependence in Decentralized Trade
The paper investigates price formation in a decentralized market with random matching. Agents are assumed to have subdued social preferences: buyers, for example, prefer a lower price to a higher one but experience reduced utility increases below a reference price which serves as a common fairness benchmark. The strategic equilibrium reflects market fundamentals, but it is markedly less sensitive to the buyer-seller ratio near the fair price benchmark. Prices may be sticky around very dierent reference levels in markets with otherwise identical fundamentals. The implied history dependence turns out to be mitigated rather than exacerbated by friction.random matching, price stickiness, social preferences, history dependence, reference dependence
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