Fixed-Wages,Wage Differentials and Workers heterogeneities
Australian Economic Papers, Vol. 47, Issue 4, pp. 320-333, December 2008
Damien GAUMONT et G. Carlier
We study incentive-compatible labour contracts in the case where individual productivity, preference for leisure and time preference rate are unobservable by the principal in a two-period model. We first reduce this three-dimensional problem to a standard one-dimensional screening problem. Features of second-best labour contracts provide a rationale for both fixed-wages and wage differentials.