Incentives ‘and’ Status

24 Pages Posted: 5 Dec 2011

See all articles by Swapnendu Banerjee

Swapnendu Banerjee

Jadavpur University, Department of Economics; Jadavpur University, Calcutta

Oindrila Dey

Jadavpur University

Date Written: December 5, 2011

Abstract

This paper characterizes the structure of monetary incentives in an organization with varying differences in employee status. Specifically, it analyzes how the optimal incentive scheme varies with changing status. With the help of a simple moral hazard framework with limited liability we show that for agents with lower outside option increased status leads to lower incentive pay whereas exactly the opposite happens for agents with higher outside option. For agents with very high status such that the limited liability doesn’t bind, an exogenous increase in status level leads to an unambiguous decrease in optimal incentive payment.

Suggested Citation

Banerjee, Swapnendu and Dey, Oindrila, Incentives ‘and’ Status (December 5, 2011). Available at SSRN: https://ssrn.com/abstract=1968374 or http://dx.doi.org/10.2139/ssrn.1968374

Swapnendu Banerjee (Contact Author)

Jadavpur University, Department of Economics ( email )

Kolkata, 700032
India
91-9330606340 (Phone)

Jadavpur University, Calcutta ( email )

Department of Economics
Calcutta 700032, West Bengal 700032
India
91-9330606340 (Phone)

Oindrila Dey

Jadavpur University ( email )

Kolkata 700032
India

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