TY - JOUR
T1 - Bonus culture
T2 - Competitive pay, screening, and multitasking
AU - Bénabou, Roland
AU - Tirole, Jean
N1 - Publisher Copyright:
© 2016 by The University of Chicago. All rights reserved.
PY - 2016/4
Y1 - 2016/4
N2 - To analyze the impact of labor market competition on the structure of compensation, we embed multitasking and screening within a Hotelling framework. Competition for talent leads to an escalation of performance pay, shifting effort away from long-term investments, risk management, and cooperation. Efficiency losses can exceed those from a single principal, who dulls incentives to extract rents. As competition intensifies, monopsonistic underincentivization of low-skill agents first decreases and then gives way to growing overincentivization of highskill ones. Aggregate welfare is thus hill-shaped, while inequality tends to rise monotonically. Bonus caps can help restore balance in incentives but may generate other distortions.
AB - To analyze the impact of labor market competition on the structure of compensation, we embed multitasking and screening within a Hotelling framework. Competition for talent leads to an escalation of performance pay, shifting effort away from long-term investments, risk management, and cooperation. Efficiency losses can exceed those from a single principal, who dulls incentives to extract rents. As competition intensifies, monopsonistic underincentivization of low-skill agents first decreases and then gives way to growing overincentivization of highskill ones. Aggregate welfare is thus hill-shaped, while inequality tends to rise monotonically. Bonus caps can help restore balance in incentives but may generate other distortions.
UR - http://www.scopus.com/inward/record.url?scp=84964225183&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84964225183&partnerID=8YFLogxK
U2 - 10.1086/684853
DO - 10.1086/684853
M3 - Article
AN - SCOPUS:84964225183
SN - 0022-3808
VL - 124
SP - 305
EP - 370
JO - Journal of Political Economy
JF - Journal of Political Economy
IS - 2
ER -