Journal of Political Economy Vol. 109 No. 4 2001
Adverse Specialization
Abstract
We analyze a multiple‐activity, principal‐agent model in which the activities are naturally substitutable for the agent and complementary for the principal. A basic result is that the optimal compensation must cause the agent to view the activities as complements. This complementarity is achieved by employing a compensation scheme that is typically nonmonotone and makes success on multiple dimensions the sole source of large rewards. A number of empirical implications follow, along with explanations for some existing empirical findings. We also discuss applications to compensation in specific occupations.
- DOI
- 10.1086/322084
- Volume
- 109
- Issue
- 4
- Pages
- 864-899
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref