Institutions, Social Custom and Efficiency Wage Models: Alternative Approaches

This article reviews some efficiency wage models and traces their alternative methodological and theoretical foundations. First, a distinction is made between models based on methodological individualism and models which, by taking the social determination of preferences seriously, go beyond the limitations of that methodology. Second, a 'contractarian' and an 'interactive' solution are distinguished within the approach of methodological individualism, while a 'radical' and an 'anthropological' perspective are shown to coexist in the alternative approach. It is argued that the latter models share a more relativistic, less conservative attitude toward institutions and norms and have interesting policy implications. (c) 1995 Academic Press Ltd. Copyright 1995 by Oxford University Press.