Efficiency Wages and X-Inefficiencies
Stockholm School of Economics Working Paper Series in Economics and Finance No. 180
21 Pages Posted: 18 Feb 1998
Date Written: August 1997
Within most organizations, agents may spend time on a variety of tasks, productive and redistributive. In this paper, I derive an optimal multi-task incentive scheme under the realistic assumption that agents have limited liability. The wage level is shown to increase with an agent's discretion and the organization's profits. With multiple agents, it is generally not optimal for the principal to fully eliminate distributional conflict within the organization. The resulting influence costs constitute a measure of X-inefficiency. The paper illuminates the relationship between competition and influence costs, emphasizing the role of the organization's production technology.
JEL Classification: J41, J31, L22
Suggested Citation: Suggested Citation