Personnel Economics

The centerpiece of most adults' daily lives is the workplace, where all participants-as workers or managers-can benefit from thinking strategically about employee motivation, compensation, and selection. Personnel Economics uses simple but formal economic models to study what happens inside the workplace. Fueled by the latest findings from behavioral economic research, the text provides an intuitive introduction to the two workhorses of empirical research on personnel issues: designing experiments and using regression to study naturally occurring data.

Peter Kuhn is Professor of Economics at the University of California, Santa Barbara. He is well known for his research on the economics of trade unions, wage and employment discrimination, immigration, displaced workers, and personnel economics with a particular emphasis on behavioral economics.

PART ONE: Principal-Agent Models

Chapter 1: Structure of the Principal-Agent Problem
1.1 What Is a Principal-Agent Problem?
1.2 Components
1.3 Profits
1.4 Utility
1.5 The Contract
1.6 The Production Function
1.7 Backwards Induction

Chapter 2: Solving the Agent's Problem
2.1 A Mathematical Solution
2.2 Comparative Statics
2.3 The Solution with Indifference Curves

Chapter 3: Solving the Principal's Problem
3.1 Warm-Up Exercise: The Principal's Problem When A=0
3.2 The Full Solution to the Principal-Agent Problem
3.3 Is It Crazy to "Sell the Job to the Worker"?

Chapter 4: Best for Whom? Efficiency and Distribution
4.1 Economically Efficient Contracts
4.2 Dividing the Pie: What's Feasible?

Chapter 5: Extensions: Uncertainty, Risk Aversion and Multiple Tasks
5.1 Which Assumptions Matter? Which Ones Don't?
5.2 Uncertainty and Risk Aversion: State-Contingent Contracts
5.3 Optimal Non-Contingent Contracts
5.4 Evidence on the Insurance-Incentives Tradeoff: Sharecropping in the South
5.5 Multi-Task Principal-Agent Problems
5.6 Nonlinear Incentives and the 'Timing Gaming' Problem

Chapter 6: Noisy Performance Measures and Optimal Monitoring
6.1 A Simple Model of Shirking with Monitoring and Fines
6.2 Solving the Agent's Problem
6.3 Efficiency: The Pie-Maximizing Solution


PART TWO: Evidence on Employee Motivation

Chapter 7: Empirical Methods in Personnel Economics
7.1 Inferring Causality: The Advantages of Randomized Controlled Trials (RCTs)
7.2 Inferring Causality in Non-Experimental Settings: Regression Analysis

Chapter 8: Performance Pay at Safelite Glass: Higher Productivity, Pay and Profits
8.1 Safelite's Performance Pay Plan (PPP) and Its Predicted Effects
8.2 How Did PPP Affect Employee Performance at Safelite?
8.3 Did the PPP Plan Raise Safelite's Profits?
8.4 Lessons from Safelite
8.5 Safelite 20 Years Later--An Epilogue

Chapter 9: Some 'Non-Classical' Motivators
9.1 "Pay Enough or Don't Pay at All"
9.2 What's Meaningful Work Worth? Intrinsic Motivation and Image Motivation
9.3 "Large Stakes and Big Mistakes"
9.4 Are High States Really a Problem? The Role of Self-Selection
9.5 Reference Points: Evidence from the Lab
9.6 Reference Points: Evidence from the Workplace
9.7 Present Bias and Procrastination

Chapter 10: Reciprocity at Work: Gift exchange, Implicit Contracts, and Trust
10.1 The Gift-Exchange Game (GEG)
10.2 Incomplete Contracts
10.3 Laboratory Evidence on Gift-Exchange Games
10.4 Intentions, Reference Points, and Positive versus Negative Reciprocity
10.5 Positive and Negative Reciprocity in the Field
10.6 Trust Can Pay: The Hidden Cost of Control
10.7 Fairness among Workers

Chapter 11: Pigeons and Pecks: Incentives and Income Effects
11.1 The Backward-Bending Labor Supply Curve (BBLS)
11.2 Explaining the BBLS: The Role of Income Effects
11.3 When Are Income Effects Likely to Be Important?
11.4 The Shape of the Utility Function and the Mathematics of Income Effects


PART THREE: Employee Selection and Training

Chapter 15: Choosing Qualifications
15.1 Optimal Worker Mix When Workers Work Independently
15.2 Optimal Worker Mix When Workers Interact in the Production Process

Chapter 16: Risky versus Safe Workers
16.1 A Baseline Example: Risky Workers and the Principle of Option Value
16.2 Changing Assumptions: When Are Risky Workers The Better Bet?

Chapter 17: Recruitment: Selecting Individual Workers
17.1 Whether to 'Go Fishing': Formal Versus Informal Channels; Internal Versus External Candidates
17.2 How Wide a Net to Cast? Searching Narrowly Versus Broadly
17.3 Choosing From the Pool: Testing, Discretion, and Self-Selection
17.4 Avoiding Bias

Chapter 18: Setting Pay Levels
18.1 "Optimal Exploitation": Pay Levels and the Elasticity of Labor Supply
18.2 Does It Really Matter What You Pay? Finding a Pay Level Niche
18.3 High Pay as a Worker Discipline Device: Efficiency Wage Models
18.4 Effects of Pay Levels on Worker Selection and Motivation: Evidence
18.5 Deferred Compensation as an Incentive and Retention Tool

Chapter 19: Training
19.1 When to Train? An Education Example
19.2 Training in Firms: When Is it Efficient?
19.3 Training in Firms: Who Should Pay?
19.4 Firm-Specific Training and the Holdup Problem
19.5 Costs and Benefits of Multiskilling


PART FOUR: Competition in the Workplace--The Economics of Relative Rewards

Chapter 20: A Simple Model of Tournaments
20.1 The Basic Elements of a Two-Player Tournament
20.2 Effort and the Probability of Winning the Promotion
20.3 The Agents' Problem: Optimal Individual Effort, Given the Contest Rules
20.4 Efficiency: Which Effort Levels Maximize the Size of the Pie?
20.5 Achieving Efficiency with the Optimal Tournament
20.6 A Theorem: The Equivalence of Tournaments and Piece Rates
20.7 Some Extensions: Many Players, Prizes and Stages
20.8 Tournaments with Risk-Averse Agents
20.9 Relative Pay Schemes in Action: The Market for Broilers

Chapter 21: Some Caveats: Sabotage, Collusion, and Risk-Taking in Tournaments
21.1 Helping and Sabotage in Tournaments
21.2 Collusion in Tournaments
21.3 Tournaments and Risk-Taking

Chapter 22: Unfair and Uneven Tournaments
22.1 Effort and the Probability of Winning the Tournament
22.2 Evidence on Asymmetric Tournaments: The Tiger Woods Effect
22.3 Addressing Ability Differences in Tournaments: Leagues, Handicaps, and Affirmative Action
22.4 Ability Differences in Multistage Contests and Promotion Ladders

Chapter 23: Who Wants to Compete? Selection into Tournaments
23.1 Ability, Risk Aversion, and Tournament Entry
23.2 Gender, Confidence, and Competitiveness


PART FIVE: Teams

Chapter 24: Incentives in Teams and the Free-Rider Problem
24.1 Some Definitions
24.2 Efficiency: Which Effort Levels Maximize the Size of the Pie?
24.3 Sharing Rules and the Free-Rider (1/N) Problem
24.4 Group Piece Rates, Group Bonuses, and Free-Riding in Teams

Chapter 25: Team Production in Practice
25.1 Altruistic Punishment and Team Performance
25.2 Can Team-Based Pay Outperform Individual Pay? Peer Pressure on Campus
25.3 Team Incentives In A Garment Factory: Why So Successful?

Chapter 26: Complementarity, Substitutability, and Ability Differences in Teams
26.1 Complementarity and Substitutability: Definitions and Evidence
26.2 Team Effort Choices under Extreme Complementarity
26.3 Team Effort Choices under Moderate Complementarity
26.4 Team Effort Choices under Substitutability
26.5 Effort, Ability Differences, and Optimal Team Size

Chapter 27: Choosing Teams: Self-Selection and Team Assignment
27.1 Who Wants To Join Teams? Ability Differences and Self-Selection
27.2 Skill Diversity, Information Sharing, and Team Performance