Competition and the Ratchet effect
By: Gary Charness, Peter Kuhn, Marie-Claire Villeval
Contributors: Kühn, Peter; Villeval, Marie-Claire; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16325; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16325.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "In labor markets, the ratchet effect refers to a situation where workers subject to performance pay choose to restrict their output, because they rationally anticipate that firms will respond to higher output levels by raising output requirements or cutting pay.  We model this effect as a multi-period principal-agent problem with hidden information, and study its robustness to labor market competition both theoretically and experimentally.  Consistent with our theoretical model, we observe substantial ratchet effects in the absence of competition, which is nearly eliminated when competition is introduced; this is true regardless of whether market conditions favor firms or workers"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 11/4/2010.

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