publication . Article . 2010

Heterogeneous Social Preferences, Screening, and Employment Contracts

von Siemens, F.A.;
  • Published: 16 Nov 2010 Journal: Oxford Economic Papers, volume 63, pages 499-522 (issn: 0030-7653, eissn: 1464-3812, Copyright policy)
  • Publisher: Oxford University Press (OUP)
  • Country: Netherlands
This paper studies a monopsonistic firm's optimal employment contracts if workers have private information on both their propensity for social comparisons and their ability. Employees of the firm are taken to form their own distinct reference group. It is shown that screening workers with equal ability according to their social preferences is then not possible within the firm. In consequence, the firm distorts production by its employees with low ability, or it excludes workers with low ability and a high propensity for social comparisons. This highlights that firms can use both contractual and organizational measures to reduce the costs arising from workers' so...
free text keywords: Economics and Econometrics, Social preferences, Organizational structure, Private information retrieval, Reference group, Monopsony, Labour economics, Social comparison theory, Business, class eco B
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