Adverse specialization

Published

Journal Article

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.

Full Text

Duke Authors

Cited Authors

  • MacDonald, G; Marx, LM

Published Date

  • January 1, 2001

Published In

Volume / Issue

  • 109 / 4

Start / End Page

  • 864 - 899

International Standard Serial Number (ISSN)

  • 0022-3808

Digital Object Identifier (DOI)

  • 10.1086/322084

Citation Source

  • Scopus