Scandinavian Working Papers in Economics

UiS Working Papers in Economics and Finance,
University of Stavanger

No 2012/11: The Tenuous Relationship between Effort and Performance Pay

Ola Kvaløy () and Trond Olsen
Additional contact information
Ola Kvaløy: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway
Trond Olsen: NHH, Postal: Norwegian School of Economics

Abstract: When a worker is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the worker's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.

Keywords: .

JEL-codes: A10

28 pages, June 1, 2012

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uis_wps_2012_11_kvaloy_olsen.pdf PDF-file

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