Morale Hazard

  title={Morale Hazard},
  author={Hanming Fang and Giuseppe Moscarini},
  journal={Yale: Cowles Foundation Working Papers},

The Morale Effects of Pay Inequality

The idea that worker utility is affected by co-worker wages has potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether

Labor Market Signaling and Self-Confidence: Wage Compression and the Gender Pay Gap

I extend Spence’s signaling model by assuming that some workers are overconfident—they underestimate their marginal cost of acquiring education—and some are underconfident. Firms cannot observe

Labor Market Signaling with Overconfident Workers

I extend Spence’s (1974) labor market signaling model by assuming some workers are overconfident and some underconfident. Overconfident (underconfident) workers underestimate (overestimate) their

Contracts for Agents with Biased Beliefs: Some Theory and an Experiment

This paper experimentally tests the predictions of a principal-agent model in which the agent has biased beliefs about his ability. Overconfi dent workers are found to earn lower wages than

On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers

We analyze the impact on a firm’s profits and optimal wage rates, and on the distribution of workers’ earnings, when workers compare their earnings with those of coworkers. We consider a

Nonstationary Relational Contracts with Adverse Selection

I develop a model of nonstationary relational contracts in order to study internal wage dynamics. Workers are heterogeneous, and each worker’s ability is both private information and fixed for all

Positive Self-Image in Tournaments

This paper analyzes the implications of worker overestimation of productivity for firms in which incentives take the form of tournaments. Each worker overestimates his productivity but is aware of

Positive Self-Image and Incentives in Organisations

This paper investigates the implications of individuals’ mistaken beliefs of their abilities on incentives in organizations using the principal-agent model of moral hazard. The paper shows that if

Curb your enthusiasm: Optimistic entrepreneurs earn less




The Wage Policy of a Firm

Salary data from a single firm are analyzed in an effort to identify the firm's wage policy. We find that employees are partly shielded against changes in external market conditions; that wage

Career Development and Specific Human Capital Collection

Pay Equality and Industrial Politics

  • E. Lazear
  • Economics
    Journal of Political Economy
  • 1989
Personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers. But it is far from obvious that a compressed salary

Perceptions of Equity and the Distribution of Income

This article develops a model in which quit rates, and thus the income distribution, depend on employee perceptions of the accuracy of employer assessments of individual productivity because these

CEO Overconfidence and Corporate Investment

We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their investment projects and view external funds as

Why Wages Don't Fall during a Recession

A deep question in economics is why wages and salaries don't fall during recessions. this is not true of other prices, which adjust relatively quickly to reflect changes in demand and supply.

The Flow Approach to Labor Markets

The "flow approach" to labor markets builds up from the flows of workers and of jobs. It is based on three essential components, a specification of labor demand in terms of flows of job

The Fair Wage-Effort Hypothesis and Unemployment

This paper introduces the fair wage-effort hypothesis and explores its implications. This hypothesis is motivated by equity theory in social psychology and social exchange theory in sociology.

Overconfidence and Excess Entry: An Experimental Approach

Psychological studies show that most people are overconfident about their own relative abilities, and unreasonably optimistic about their futures (e.g. Shelly E. Taylor and J.D. Brown, 1988; Neil D.


'No trade' theorems have shown that new information will not lead to trade when agents share the same prior beliefs. This paper explores the structure of no trade theorems with heterogeneous prior