Efficiency Wages and X-Inefficiencies

Scandinavian Journal of Economics, Vol. 99, No. 4, December 1997

Posted: 18 Feb 1998

See all articles by Tore Ellingsen

Tore Ellingsen

Stockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

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Abstract

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

Ellingsen, Tore, Efficiency Wages and X-Inefficiencies. Scandinavian Journal of Economics, Vol. 99, No. 4, December 1997, Available at SSRN: https://ssrn.com/abstract=60387

Tore Ellingsen (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

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+46 8 736 9260 (Phone)
+46 8 31 3207 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

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N-5035 Bergen
Norway

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