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Adverse Specialization


Glenn MacDonald


Washington University in Saint Louis - John M. Olin Business School

Leslie M. Marx


Duke University - Fuqua School of Business, Economics Group
September 15, 1998


Abstract:     
We analyze a multiple-activity principal-agent model in which the activities are naturally substitutable for the agent and complementary for the principal. A basic result is that the optimal compensation mechanism must cause the agent to view the activities as complements. This complementarity is achieved by using a compensation scheme that makes success on multiple dimensions the sole source of large rewards. A number of empirical implications follow, along with explanations for some existing empirical findings. We also discuss applications to compensation in specific occupations.

Number of Pages in PDF File: 58

JEL Classification: D81

working papers series


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Date posted: October 8, 1998  

Suggested Citation

MacDonald, Glenn M. and Marx, Leslie M., Adverse Specialization (September 15, 1998). Available at SSRN: http://ssrn.com/abstract=127348 or http://dx.doi.org/10.2139/ssrn.127348

Contact Information

Glenn M. MacDonald (Contact Author)
Washington University in Saint Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-7768 (Phone)
314-935-6359 (Fax)
HOME PAGE: http://www.olin.wustl.edu/faculty/macdonald/
Leslie M. Marx
Duke University - Fuqua School of Business, Economics Group ( email )
Box 90097
Durham, NC 27708-0097
United States
Feedback to SSRN (Beta)


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