Incentives and discrimination: A functional optimization approach
Author: Tetsutaro Hatakeyama
Date: 2025/3/21
No: DP2025-003
JEL Classification codes: C72, D23, D62, D63, J71
Language: English
[ Abstract / Highlights ]
In team production models, an optimal incentive scheme that guarantees workers’ effort investment can be discriminatory (Winter, 2004). We demonstrate how this trade-off in incentives and discrimination disappears in a complementary setting. In our model, as well as payment scheme for workers, the firm chooses a production technology, mapping from workers’ effort choice to the success probability of the project. Contrary to the known result, our firm-optimal incentive scheme does not
discriminate any symmetric workers.