Preface1. Introduction The Economics of the Employment Relationship The Economics of Incentives and Information2. Optimization "How Much" Decisions and Marginal Analysis Global Optimization General Lessons A Classic Example: The Short-Run Competitive Firm3. Traditional Labor Market Analysis The Firm's Problem The Worker's Problem Labor Markets Labor Market Analysis and Personnel Economics4. Compensation and Motivation Worker Effort and Efficiency Compensation Schemes and Effort ChoicesPiece rates. Straight salary. Box: Do workers on salary work less than those who are paid for performance? Quotas. Commission. Box: Do workers really work harder when commission rates go up? General Lessons5. Piece Rates Piece Rates at Safelite Glass Optimal Piece Rates General Lessons A Closer Look at the Salary Component Optimal Sales Commissions Motivating the Wrong Behavior6. Problems with Piece Rates Should Teachers be Paid for Performance? Box: Do incentives lead to "teaching to the test?" Multiple Tasks Imperfectly-Observed Effort General Lessons The Equal Compensation Principle. The Incentive Intensity Principle.7. Motivating Multiple Types The Full-Information Case Moral Hazard The Optimal Contract for the Hidden-Information Setting General Lessons8. Game Theory What is a Game? The Concept of Equilibrium Simultaneous Games Application: Assigning duties in a team. Lessons about simultaneous games. Simultaneous Games with Infinitely Many Possible Strategies Application: Output in a duopoly. Sequential Games Lessons about sequential games.9. Tournaments Some Examples A Model of a Tournament Optimal Effort for an Individual Worker Competition Between Workers Box: Do larger prizes really induce more effort? A numerical example. Implications for Motivating WorkersPay for performance? Pay structures in hierarchies. Box: The prize structure in golf tournaments. The Peter Principle. Promotions from within vs. hiring from outside. Tournaments when One Worker has an AdvantageAbility differences. Favoritism. Influence Activities Sucking up. Backstabbing. Misrepresenting Information.10. Efficiency Wages A Model of Efficiency Wages Repetition. Harsh punishment. Repetition and harsh punishment together. General Lessons Restrictions on the Firm's BehaviorRestrictions on wage reductions. Restrictions on firing. Unemployment insurance.11. Team Incentives Why Teams?Complementarities. Identification of contributions. Knowledge transfer. Fairness. Three Approaches to Analyzing TeamsA game-theoretic approach. A public goods approach. A mathematical approach. Box: Splitting the bill in a restaurant. General lessons. When Can Team Compensation Work? Profit-Sharing and Gain-Sharing12. Comparison of Incentive Schemes Getting Workers to Work When Can the Different Schemes be Used? Who Gets the Surplus? A Comparison of Problems Choosing the Right Incentive SchemeTechnical support operators. College football coaching staffs. Dental hygienists.13. Executive Compensation A Few Examples Aligning the CEO's and the Owners' Interests Stock vs. Stock Options Insulating CEOs from Broad Market Swings Box: Do CEOs benefit from laying off workers? Why are CEOs Paid So Much?14. Performance Evaluation A Tale of Two Firms The Supervisor's Problem Box: How many rating categories should there be? The Worker's Problem Forced Rating Distributions General Lessons15. Adverse Selection Trying to Hire the Best Workers Box: Adverse selection an hiring airport security screeners. When Does Adverse Selection Occur? Box: Can baseball teams identify high-productivity players? Solving the Adverse Selection Problem Piece rates. Probationary contracts. Adverse Selection in Other Areas of Economics Used cars. Car repairs. Health insurance.16. Signaling Getting an EducationDiscounting the future. General lessons about getting an education. Some real world numbers. Education as a Signal of Quality Signaling and Equilibrium Is Education Really Just a Signal? Other Examples of SignalingDressing for success. Licensing. Celebrity endorsements of charities. Deductibles in insurance. Warranties. Signals in nature.17. Search Benefits and Costs of Search Costs. Benefits. Optimal SearchImportant features of the optimal search rule. Box: Do people use the optimal search strategy? Determinants of the Amount of Search Job SearchSearching for a first job. Searching for a job when already employed. Searching for a job while collecting unemployment benefits.18. Bargaining The Goal of Bargaining Sequential BargainingThe simplest possible bargaining game. A two-round bargaining game. A three-round bargaining game. Impatience, Uncertainty, and Risk Aversion Impatience. Uncertainty. Risk Aversion. The Nash Approach to Bargaining What can we learn from the Nash bargaining solution? General Lessons19. Training Training in Professional Sports Training and Human Capital Bargaining and the Value of Training Bargaining. Conditions for training to occur. Making Training Worthwhile for the Firm Reducing the portability of skills. Training and the Incentives to Remain with a Firm20. Benefits The Issue of Child Care Preferences over Benefits and PayThe most-preferred package vs. the one offered by the firm. Cost Advantages for the FirmThe sources of cost advantages. Box: Pharmacies at Caesars casinos. The Problems Faced by Small Firms