We would like to thank George Baker, Jed DeVaro, Paul Oyer, Michael Raith, Mark Westerfield, Julie Wulf, the editor (Mark Armstrong), and two anonymous referees for helpful comments and suggestions.
Work-related perks, agency problems, and optimal incentive contracts
Article first published online: 28 JUN 2008
© 2008, RAND
The RAND Journal of Economics
Volume 39, Issue 2, pages 565–585, Summer 2008
How to Cite
Marino, A. M. and Zábojník, J. (2008), Work-related perks, agency problems, and optimal incentive contracts. The RAND Journal of Economics, 39: 565–585. doi: 10.1111/j.0741-6261.2008.00028.x
- Issue published online: 16 SEP 2008
- Article first published online: 28 JUN 2008
Work-related perks, such as corporate jets, nice offices, and so forth, improve the tradeoff between incentives and insurance that determines the optimal incentive contract. We show that (i) such perks may be offered even if their direct consumption benefits are offset by their costs; (ii) they will be offered for free; (iii) agents in more uncertain production environments will receive more perks; (iv) senior executives should receive more perks; and (v) better corporate governance can lead to more perk consumption by CEOs. Our analysis also offers insights into firms' decisions about how much autonomy they should grant to their employees.