Uncertainty, Pay for Performance, and Asymmetric Information

Posted: 22 Sep 2009

Date Written: October 2009


This article develops a new rationale for the emergence of pay-for-performance contracts where the labor market is competitive, workers are risk averse, and firms are risk neutral and unaware of workers' productivities. The article shows that the prevalence of pay for performance rises and the pay-for-performance sensitivity falls as environmental uncertainty increases. This empirical regularity is unaccounted for alternative models such as the standard agency model.

JEL Classification: D86, L2, M5, J3

Suggested Citation

Balmaceda, Felipe, Uncertainty, Pay for Performance, and Asymmetric Information (October 2009). The Journal of Law, Economics, & Organization, Vol. 25, Issue 2, pp. 400-441, 2009, Available at SSRN: https://ssrn.com/abstract=1476655 or http://dx.doi.org/10.1093/jleo/ewn022

Felipe Balmaceda (Contact Author)

Diego Portales University ( email )

Avda Santa Clara 797
Santiago, RM 8580000

HOME PAGE: http://https://works.bepress.com/felipe_balmaceda

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