Optimal incentive contracts for knowledge workers

Englmaier, Florian; Muehlheusser, Gerd and Roider, Andreas (2014): Optimal incentive contracts for knowledge workers. In: European Economic Review, Vol. 67: 82 - 106

Abstract

Abstract We study optimal incentive provision for “knowledge workers�, a crucial resource for many organizations. We augment a standard moral-hazard framework to reflect two key patterns: First, retention is a challenge because workers are free to leave; thereby harming their employer. Second, the value of the worker׳s outside option might depend on effort on the job. Optimal contracts that retain workers exhibit properties such as first-best effort and surplus, or non-responsiveness to changes in underlying conditions. Due to large rents, full retention is, however, costly for employers. Hence, even when socially inefficient, separation might occur in equilibrium.

• Item Type: Journal article
• Keywords: Knowledge workers
• Faculties: Economics; Economics > Chairs; Economics > Chairs > Seminar for Organizational Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D86, D82, K31, M52
• ISSN: 0014-2921
• Language: English