<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>We examine the effects of a single payment structure policy (SPP) that prevents an employer from offering an employee a choice among compensation structures. An SPP reduces the employer's profit and increases the employee's welfare when the employee's (privately known) ability is exogenous. In contrast, an SPP can increase both the employer's profit and the employee's welfare when the employee's ability is endogenous. An SPP secures these Pareto gains by restricting the employer's ability to limit the rent the employee earns from high ability, thereby inducing the employee to increase his human capital investment.</p>
</abstract>

We examine the effects of a single payment structure policy (SPP) that prevents an employer from offering an employee a choice among compensation structures. An SPP reduces the employer's profit and increases the employee's welfare when the employee's (privately known) ability is exogenous. In contrast, an SPP can increase both the employer's profit and the employee's welfare when the employee's ability is endogenous. An SPP secures these Pareto gains by restricting the employer's ability to limit the rent the employee earns from high ability, thereby inducing the employee to increase his human capital investment.

Pareto Gains from Limiting Compensation Options

IZA Journal of Labor Economics

This work is licensed under the Creative Commons Attribution 4.0 International License.

{"article-title":"Pareto Gains from Limiting Compensation Options"}

We examine the effects of a single payment structure policy (SPP) that prevents an employer from offering an employee a choice among compensation structures....

Pareto Gains from Limiting Compensation Options

Published Online: Nov 11, 2023

Page range: -

Received: Feb 06, 2023

DOI: https://doi.org/10.2478/izajole-2023-0002

Keywords
limited contract choice, human capital investment

© 2023 Debashis Pal et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Pareto Gains from Limiting Compensation Options

Published Online: Nov 11, 2023

Page range: -

Received: Feb 06, 2023

DOI: https://doi.org/10.2478/izajole-2023-0002

Keywordslimited contract choice, human capital investment

© 2023 Debashis Pal et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Keywords
limited contract choice, human capital investment