Output and wages with inequality averse agents

Demougin, Dominique ORCID: 0000-0002-1744-0390, Fluet, Claude and Helm, Carsten (2006) Output and wages with inequality averse agents. CANADIAN JOURNAL OF ECONOMICS-REVUE CANADIENNE D ECONOMIQUE, 39 (2). pp. 399-413.

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Abstract

We analyse a two-task work environment with risk-neutral but inequality averse individuals. For the agent employed in task 2 effort is verifiable, while in task 1 it is not. Accordingly, agent 1 receives an incentive contract that, owing to his wealth constraint, leads to a rent that the other agent resents. We show that greater inequality aversion unambiguously decreases total output and therefore average labour productivity. More specifically, inequality aversion reduces effort, wage, and payoff of agent 1. Effects on wage and effort of agent 2 depend on whether effort levels across tasks are substitutes or complements in the firm's output function. © Canadian Economics Association, 2006.

Item Type:	Article
Uncontrolled Keywords:	D63, D2, J3, L2, Inequality aversion, wage compression, moral hazard, incentives
Depositing User:	Symplectic Admin
Date Deposited:	15 Aug 2016 09:53
Last Modified:	16 Mar 2024 10:50
DOI:	10.1111/j.0008-4085.2006.00352.x
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3002929