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 June 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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