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Perks: Contractual Arrangements to Restrain Moral Hazard

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  • Song, Joon
Abstract
Perks are a commodity bundle offered by an employer to an employee. They are used to directly control an employee's consumption. Consuming certain goods increases the marginal disutility of non-contractible effort. Lower consumption of such goods will make it less costly to induce an employee to put in high effort. To compensate for the decrease in such goods, an employer gives luxurious perks. By "luxurious" I mean that per-dollar marginal utilities of these perks are lower than those of other goods. This model explains the existence of perks such as box seat tickets and club memberships, which neither save tax nor enter the production function. Also, perks can be more luxurious at an unsuccessful outcome than at a successful outcome, and an employee with a more successful history receives more perks.

Suggested Citation

  • Song, Joon, 2008. "Perks: Contractual Arrangements to Restrain Moral Hazard," Economics Discussion Papers 8921, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:8921
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    References listed on IDEAS

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