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Efficiency Wages and X‐Inefficiencies

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  • Tore Ellingsen

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 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 analysis illuminates the relationship between competition and influence costs, emphasizing the role of the organization's production technology.

Suggested Citation

  • Tore Ellingsen, 1997. "Efficiency Wages and X‐Inefficiencies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(4), pages 581-596, December.
    • Handle: RePEc:bla:scandj:v:99:y:1997:i:4:p:581-596
    DOI: 10.1111/1467-9442.00082
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    Cited by:

    1. Konrad, Kai A., 2002. "Investment in the absence of property rights; the role of incumbency advantages," European Economic Review, Elsevier, vol. 46(8), pages 1521-1537, September.
    2. Oliver Gürtler, 2010. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(4), pages 359-377, October.
    3. Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 168, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Seabright, Paul, 2000. "Skill versus judgement and the architecture of organisations," European Economic Review, Elsevier, vol. 44(4-6), pages 856-868, May.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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