We analyze optimal labor contracts when the worker is inequity averse towards the employer. Welfare is maximized for an equal sharing rule of surplus between the worker and the firm. That is, profit sharing is optimal even if effort is contractible. If the firm can make a take-it-or leave-it...

We analyze the effects of lower bounds on wages on optimal job design within firms. In our model, two tasks affect firm value and an imperfect performance measure. Due to cost advantages of specialization, assigning the tasks to different agents is efficient. Yet a sufficiently large wage floor...

We analyze the effects of lower bounds on wages, e.g., minimum wages or liability limits, on job design within firms. In our model, two tasks contribute to non-veriable firm value and affect an imperfect performance measure. The tasks can be assigned to either one or two agents. In the absence...

We analyze the effects of wage floors on optimal job design in a moral-hazard model with asymmetric tasks and imperfect aggregate performance measurement. Due to cost advantages of specialization, assigning the tasks to different agents is efficient. A sufficiently high wage floor, however,...

In a moral-hazard environment, I compare the profitabilities of a rank-order tournament and independent bonus contracts when a firm employs two envious workers whose individual performances are not verifiable. Whereas the bonus scheme must then be self-enforcing, the tournament is contractible....

In many countries, wages are set by collective agreements, which tend to impose standard wages across workers in the same sector and job. We analyze the impact of imposing such standard wages on labor market outcomes. We set the labor relationship in a moral-hazard environment where two...