Comments on: Dock Him $10 for This Post… http://www.juliansanchez.com/2007/10/17/dock-him-10-for-this-post/ Just another geek in the geek kingdom Thu, 09 Feb 2012 05:38:37 +0000 hourly 1 http://wordpress.org/?v=3.2 By: Ryan http://www.juliansanchez.com/2007/10/17/dock-him-10-for-this-post/comment-page-1/#comment-3135 Ryan Fri, 19 Oct 2007 22:47:46 +0000 http://juliansanchez.com/?p=2025#comment-3135 "Formalized merit pay is a way of substituting for that, given that we don't have a genuinely competitive education market..." I would have said that merit pay is a way of aligning the incentives of firm and employee, and that the prevalence of merit pay will depend on things like the risk aversion of the firms & employees, the "exogenous" variance of output, the difficulty of measuring output, and so on. Competition and the zero profit condition in the final goods market may actually compel firms to implement some sort of merit pay scheme so as to induce the efficient level and allocation of effort. In a more empirical vein, labor economists have been surprised by how infrequently firms use true merit pay compensation. One of the big concerns is that paying for output on some dimension (but not on another, unobservable dimension) may badly distort the employee allocation of effort. “Formalized merit pay is a way of substituting for that, given that we don’t have a genuinely competitive education market…”

I would have said that merit pay is a way of aligning the incentives of firm and employee, and that the prevalence of merit pay will depend on things like the risk aversion of the firms & employees, the “exogenous” variance of output, the difficulty of measuring output, and so on. Competition and the zero profit condition in the final goods market may actually compel firms to implement some sort of merit pay scheme so as to induce the efficient level and allocation of effort.

In a more empirical vein, labor economists have been surprised by how infrequently firms use true merit pay compensation. One of the big concerns is that paying for output on some dimension (but not on another, unobservable dimension) may badly distort the employee allocation of effort.

]]> By: SomeCallMeTim http://www.juliansanchez.com/2007/10/17/dock-him-10-for-this-post/comment-page-1/#comment-3134 SomeCallMeTim Thu, 18 Oct 2007 03:50:45 +0000 http://juliansanchez.com/?p=2025#comment-3134 Yglesias elaborates what I was wondering/suggesting. Which, as you indicate, suggests that the market in which writers compete is not a simple model market. And, as you also acknowledge, this might also be true of the teaching market. The incentives might be screwed up, but it's not as if incentives don't exist in teaching (admittedly, "I suspect"). And I don't think it's the least bit clear that parents are the obvious customers. Yglesias elaborates what I was wondering/suggesting. Which, as you indicate, suggests that the market in which writers compete is not a simple model market. And, as you also acknowledge, this might also be true of the teaching market.

The incentives might be screwed up, but it’s not as if incentives don’t exist in teaching (admittedly, “I suspect”). And I don’t think it’s the least bit clear that parents are the obvious customers.

]]> By: Julian Sanchez http://www.juliansanchez.com/2007/10/17/dock-him-10-for-this-post/comment-page-1/#comment-3133 Julian Sanchez Wed, 17 Oct 2007 21:39:19 +0000 http://juliansanchez.com/?p=2025#comment-3133 Not really, no. Not really, no.

]]> By: SomeCallMeTim http://www.juliansanchez.com/2007/10/17/dock-him-10-for-this-post/comment-page-1/#comment-3132 SomeCallMeTim Wed, 17 Oct 2007 21:11:44 +0000 http://juliansanchez.com/?p=2025#comment-3132 Does whether the Atlantic operates in the black matter at all to your argument? Does whether the Atlantic operates in the black matter at all to your argument?

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