Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 340: Monitoring and Pay: General results

Magnus Allgulin
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Magnus Allgulin: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper considers the opitmal incentives for motivating a risk neutral, wealth constrained agent. In particular, monitoring and pay are shown to be complementary instruments under very general conditions, extending earlier results by Allgulin and Ellingsen (1998). The paper also proves that linear incentive schemes are strictly sub-optimal in this setting.

Keywords: Monitoring; efficiency wages; incentive pay

JEL-codes: J31; J41

15 pages, October 1999

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