ISSN:
1617-7134
Keywords:
fringe benefits
;
moral hazard
;
risk sharing
;
incentives
;
G32
;
G39
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract The purpose of this paper is to establish a new insight into the potential benefit of fringe benefits used by firms in compensation contracts. We show that fringe benefits have a role to provide incentives and reduce agency costs. In an agency model with moral hazard, we examine the optimal incentive package that involves salary, equity shares, and fringe benefits. Based on the notion that fringe benefits are imperfect substitutes for salary and (weakly) complementary to effort, we show how the optimal package may include an excessive provision of fringe benefits that exceeds the first-best level, and why it involves a distortion towards overconsumption of fringe benefits in terms of the manager's preferences.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/BF01226934
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