Profit sharing, worker effort, and double-sided moral hazard in an efficiency wage model
Resource
Journal of Comparative Economics 31,75-93
Journal
Journal of Comparative Economics 31
Pages
75-93
Date Issued
2003
Date
2003
Author(s)
Chang, Juin-jen
Lai, Ching-chong
Lin, Chung-cheng
DOI
246246/2006111501275404
Abstract
This paper develops a double-sided moral hazard model to examine the productivity and
employment effects of an intensifying profit-sharing scheme. We show that, in order to obtain
the productivity-enhancing & employment-expanding effects, a profit-sharing scheme needs a supportive element of true sharing by the employer. If a double moral hazard exists for the worker’s effort & the firm’s declaration of true profits, a sharing scheme involving larger profit-related pay is not necessarily an effective policy for boosting work morale & employment. However, if the firmside moral hazard problem is absent, the favorable effects of profit sharing are achieved.
employment effects of an intensifying profit-sharing scheme. We show that, in order to obtain
the productivity-enhancing & employment-expanding effects, a profit-sharing scheme needs a supportive element of true sharing by the employer. If a double moral hazard exists for the worker’s effort & the firm’s declaration of true profits, a sharing scheme involving larger profit-related pay is not necessarily an effective policy for boosting work morale & employment. However, if the firmside moral hazard problem is absent, the favorable effects of profit sharing are achieved.
Subjects
Profit sharing
Double moral hazard
Efficiency wages
Type
journal article
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