Working Paper: NBER ID: w1935
Authors: William T. Dickens; Lawrence Katz; Kevin Lang
Abstract: Efficiency wage models have been criticized because worker malfeasance can be prevented in a pareto efficient manner by requiring workers to post a bond which they lose if they are caught cheating. However, since it is costly to monitor workers and costless to demand a larger bond, firms should pay nothing for monitoring and demand very large bonds. Since we observe that firms devote considerable resources to monitoring workers, bonds must be limited. Therefore firms must use second best alternatives -- intensive monitoring and/or efficiency wages. The payment of efficiency wages cannot be ruled out on a priori theoretical grounds.
Keywords: Efficiency wages; Labor economics; Worker malfeasance
JEL Codes: J31; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Efficiency wages (J33) | Reduction of worker malfeasance (J83) |
| Monitoring expenditures (H51) | Necessity of efficiency wages (J33) |
| Limited bonding options (H74) | Necessity of efficiency wages (J33) |
| Resources spent on monitoring (E01) | Indication of limited bonding solution (H74) |