It is well-known that, in static models, minimum wages generate positive worker rents and, consequently, inefficiently low effort. We show that this result does not necessarily extend to a dynamic context. The reason is that, in repeated employment relationships, firms may exploit workers'...

We highlight two effects of a works council that seem contradictory: the rent-seeking effect, which claims that a works council is set up by the workers to extract large rents from their employer, and the employment-security effect, which asserts that a works council is founded if the firm is...

We consider a moral-hazard problem in a principal-agent relationship. Each party can renege on the signed contract since verification of effort is costly and subject to uncertainty. It is shown that ex-post litigation can restore incentives of the agent. Moreover, when the litigation can be...

Using data on executive compensation for the German chemical industry, we investigate the relevance of two theoretical approaches that focus on bonuses as part of a long term wage policy of a firm. The first approach argues that explicit bonuses serve as substitutes for implicit career concerns....

We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low...

The paper analyzes the choice of organizational structure as solution to the trade-off between controlling behavior based on authority rights and minimizing costs for implementing high efforts. The analysis includes the owner of a firm, a top manager and two division heads. If it is more...

The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If...

We show that in competitive careers based on individual performance the least productive individuals may have the highest probabilities to be promoted to top positions. These individuals have the lowest fall-back positions and, hence, the highest incentives to succeed in career contests. This...

In the last two decades, the widespread use of web-based social networks has led to a higher visibility of workers to the labor market. We theoretically and experimentally analyze the consequences of such increased labor market transparency for the efficiency of job assignments, the wages of...