Consider a principal-agent relationship in which more effort by the agent raises the likelihood of success. Does rewarding success, i.e., paying a bonus, increase effort in this case? I find that bonuses have not only an incentive but also an income effect. Overall, bonuses paid for success may...

Consider a principal-agent relationship in which more eort by the agent raises thelikelihood of success. Does rewarding success, i.e., paying a bonus, increase eort inthis case? I nd that bonuses have not only an incentive but also an income eect.Overall, bonuses paid for success may well reduce...

We consider the effects on reward systems of workers' concern with relative pay by comparing the wage costs of providing incentives through group versus individual bonus schemes. When workers have a propensity for envy, either scheme may be the least cost one depending on the workers' outside...