The welfare effects of incentive schemes
By: Adam Copeland and Cyril Monnet.
Series: Finance and economics discussion series ;; 2003-08; Finance and economics discussion series (Online) ;; 2003-08.
Publisher: Federal Reserve Board
Published: 2003
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Subjects: Incentives in industry.; Labor productivity.
Description: "This paper computes the change in welfare associated with the introduction of incentives.  Specifically, we calculate by how much the welfare gains of increased output due to incentives outweigh workers' disutility from increased effort.  We accomplish this by studying the use of incentives by a firm in the check-clearing industry.  Using this firm's production records, we model and estimate the worker's dynamic effort decision problem.  We find that the firm's incentive scheme has a large effect on productivity, raising it by 14% over the sample period.  Using our parameter estimates, we show that the cost of increased effort due to incentives is equal to the dollar value of a 9% rise in productivity.  Welfare is measured as the output produced minus the cost of effort, hence the net increase in welfare due to the introduction of the firm's bonus plan is 5%.  Under a first-best scheme, we find that the net increase in welfare is 6%"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 7/29/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.