EFFICIENCY WAGES AND X-INEFFICIENCIES

Within most organizations, agents may spend time on a variety of tasks - productive and redistributive. In this paper, I derive an optimal m ulti-task incentive scheme under the assumption that agents have limit ed liability. The wage level is shown to increase with an agent's disc retion and the organization's profits. With multiple agents, it is gen erally not optimal for the principal to fully eliminate distributional conflict within the organization. The resulting influence costs const itute a measure of X-inefficiency. The analysis illuminates the relati onship between competition and influence costs, emphasizing the role o f the organization's production technology.