NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Efficiency Wages Efficient?

William T. Dickens, Lawrence F. Katz, Kevin Lang

NBER Working Paper No. 1935
Issued in May 1986
NBER Program(s):   LS

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.

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Document Object Identifier (DOI): 10.3386/w1935

Published: Journal of Labor Economic, Vol 7, July 1989

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