TY  - RPRT
        AU  - Schnedler, Wendelin
        TI  - You Don't Always Get What You Pay For
        PY  - 2007/Sep/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 3077
        UR  - https://www.iza.org/index.php/publications/dp3077
        AB  - Consider a principal-agent relationship in which more effort by the agent raises the likelihood of success. Does rewarding success, i.e., paying a bonus, increase effort in this case? I find that bonuses have not only an incentive but also an income effect. Overall, bonuses paid for success may well reduce effort and hence the probability of success. I also identify conditions under which the income effect dominates the incentive effect, and single out the hazard-rate of effort as a crucial determinant of this trade-off.
        KW  - moral hazard
KW  - bonus
KW  - premium
KW  - incentives
KW  - income effect
        ER  -