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Competition and the Ratchet Effect / Gary Charness, Peter Kuhn, Marie-Claire Villeval.
- Format:
- Book
- Author/Creator:
- Charness, Gary.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w16325.
- NBER working paper series no. w16325
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2010.
- Summary:
- In labor markets, the ratchet effect refers to a situation where workers subject to performance pay choose to restrict their output, because they rationally anticipate that firms will respond to higher output levels by raising output requirements or cutting pay. We model this effect as a multi-period principal-agent problem with hidden information, and study its robustness to labor market competition both theoretically and experimentally. Consistent with our theoretical model, we observe substantial ratchet effects in the absence of competition, which is nearly eliminated when competition is introduced; this is true regardless of whether market conditions favor firms or workers.
- Notes:
- Print version record
- September 2010.
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