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Personnel Economics

Author Peter Kuhn

Publication Date - 21 November 2017

ISBN: 9780199378012

592 pages
7-1/2 x 9-1/4 inches

In Stock

A modern text in personnel economics that incorporates new experimental and behavioral economic insights


The centerpiece of most adults' daily lives is the workplace, where all participants-as workers or managers-can benefit from thinking strategically about employee motivation, compensation, and selection. Personnel Economics uses simple but formal economic models to study what happens inside the workplace. Fueled by the latest findings from behavioral economic research, the text provides an intuitive introduction to the two workhorses of empirical research on personnel issues: designing experiments and using regression to study naturally occurring data.


  • The author's engaging, conversational style makes the text interesting and accessible to a wide range of students
  • The most up-to-date empirical studies ensure that students are studying the best research available
  • Concise "Results" boxes summarize the takeaway lessons of research and experiments for real workplaces
  • Recent advances in behavioral economics that connect to the workplace are seamlessly integrated
  • An intuitive discussion of experimental design and regression analysis in Chapter 7, "Empirical Methods in Personnel Economics," provides a thorough introduction for students who have no background in statistics and econometrics and a useful review for those who have already taken these courses

About the Author(s)

Peter Kuhn is Professor of Economics at the University of California, Santa Barbara. He is well known for his research on the economics of trade unions, wage and employment discrimination, immigration, displaced workers, and personnel economics with a particular emphasis on behavioral economics.


"This is a fantastic analysis of the nexus of the theory of personnel economics and the data from economic experiments."--Jeffrey Carpenter, Middlebury College

"This text provides an up-to-date, rigorous, and stimulating introduction to personnel economics. Key aspects of theory are carefully developed and then subjected to assessment through a review of related evidence."--Nick Adnett, Staffordshire University Business School

Table of Contents

    PART ONE: Principal-Agent Models

    Chapter 1: Structure of the Principal-Agent Problem
    1.1 What Is a Principal-Agent Problem?
    1.2 Components
    1.3 Profits
    1.4 Utility
    1.5 The Contract
    1.6 The Production Function
    1.7 Backwards Induction

    Chapter 2: Solving the Agent's Problem
    2.1 A Mathematical Solution
    2.2 Comparative Statics
    2.3 The Solution with Indifference Curves

    Chapter 3: Solving the Principal's Problem
    3.1 Warm-Up Exercise: The Principal's Problem When A=0
    3.2 The Full Solution to the Principal-Agent Problem
    3.3 Is It Crazy to "Sell the Job to the Worker"?

    Chapter 4: Best for Whom? Efficiency and Distribution
    4.1 Economically Efficient Contracts
    4.2 Dividing the Pie: What's Feasible?

    Chapter 5: Extensions: Uncertainty, Risk Aversion and Multiple Tasks
    5.1 Which Assumptions Matter? Which Ones Don't?
    5.2 Uncertainty and Risk Aversion: State-Contingent Contracts
    5.3 Optimal Non-Contingent Contracts
    5.4 Evidence on the Insurance-Incentives Tradeoff: Sharecropping in the South
    5.5 Multi-Task Principal-Agent Problems
    5.6 Nonlinear Incentives and the 'Timing Gaming' Problem

    Chapter 6: Noisy Performance Measures and Optimal Monitoring
    6.1 A Simple Model of Shirking with Monitoring and Fines
    6.2 Solving the Agent's Problem
    6.3 Efficiency: The Pie-Maximizing Solution

    PART TWO: Evidence on Employee Motivation

    Chapter 7: Empirical Methods in Personnel Economics
    7.1 Inferring Causality: The Advantages of Randomized Controlled Trials (RCTs)
    7.2 Inferring Causality in Non-Experimental Settings: Regression Analysis

    Chapter 8: Performance Pay at Safelite Glass: Higher Productivity, Pay and Profits
    8.1 Safelite's Performance Pay Plan (PPP) and Its Predicted Effects
    8.2 How Did PPP Affect Employee Performance at Safelite?
    8.3 Did the PPP Plan Raise Safelite's Profits?
    8.4 Lessons from Safelite
    8.5 Safelite 20 Years Later--An Epilogue

    Chapter 9: Some 'Non-Classical' Motivators
    9.1 "Pay Enough or Don't Pay at All"
    9.2 What's Meaningful Work Worth? Intrinsic Motivation and Image Motivation
    9.3 "Large Stakes and Big Mistakes"
    9.4 Are High States Really a Problem? The Role of Self-Selection
    9.5 Reference Points: Evidence from the Lab
    9.6 Reference Points: Evidence from the Workplace
    9.7 Present Bias and Procrastination

    Chapter 10: Reciprocity at Work: Gift exchange, Implicit Contracts, and Trust
    10.1 The Gift-Exchange Game (GEG)
    10.2 Incomplete Contracts
    10.3 Laboratory Evidence on Gift-Exchange Games
    10.4 Intentions, Reference Points, and Positive versus Negative Reciprocity
    10.5 Positive and Negative Reciprocity in the Field
    10.6 Trust Can Pay: The Hidden Cost of Control
    10.7 Fairness among Workers

    Chapter 11: Pigeons and Pecks: Incentives and Income Effects
    11.1 The Backward-Bending Labor Supply Curve (BBLS)
    11.2 Explaining the BBLS: The Role of Income Effects
    11.3 When Are Income Effects Likely to Be Important?
    11.4 The Shape of the Utility Function and the Mathematics of Income Effects

    PART THREE: Employee Selection and Training

    Chapter 15: Choosing Qualifications
    15.1 Optimal Worker Mix When Workers Work Independently
    15.2 Optimal Worker Mix When Workers Interact in the Production Process

    Chapter 16: Risky versus Safe Workers
    16.1 A Baseline Example: Risky Workers and the Principle of Option Value
    16.2 Changing Assumptions: When Are Risky Workers The Better Bet?

    Chapter 17: Recruitment: Selecting Individual Workers
    17.1 Whether to 'Go Fishing': Formal Versus Informal Channels; Internal Versus External Candidates
    17.2 How Wide a Net to Cast? Searching Narrowly Versus Broadly
    17.3 Choosing From the Pool: Testing, Discretion, and Self-Selection
    17.4 Avoiding Bias

    Chapter 18: Setting Pay Levels
    18.1 "Optimal Exploitation": Pay Levels and the Elasticity of Labor Supply
    18.2 Does It Really Matter What You Pay? Finding a Pay Level Niche
    18.3 High Pay as a Worker Discipline Device: Efficiency Wage Models
    18.4 Effects of Pay Levels on Worker Selection and Motivation: Evidence
    18.5 Deferred Compensation as an Incentive and Retention Tool

    Chapter 19: Training
    19.1 When to Train? An Education Example
    19.2 Training in Firms: When Is it Efficient?
    19.3 Training in Firms: Who Should Pay?
    19.4 Firm-Specific Training and the Holdup Problem
    19.5 Costs and Benefits of Multiskilling

    PART FOUR: Competition in the Workplace--The Economics of Relative Rewards

    Chapter 20: A Simple Model of Tournaments
    20.1 The Basic Elements of a Two-Player Tournament
    20.2 Effort and the Probability of Winning the Promotion
    20.3 The Agents' Problem: Optimal Individual Effort, Given the Contest Rules
    20.4 Efficiency: Which Effort Levels Maximize the Size of the Pie?
    20.5 Achieving Efficiency with the Optimal Tournament
    20.6 A Theorem: The Equivalence of Tournaments and Piece Rates
    20.7 Some Extensions: Many Players, Prizes and Stages
    20.8 Tournaments with Risk-Averse Agents
    20.9 Relative Pay Schemes in Action: The Market for Broilers

    Chapter 21: Some Caveats: Sabotage, Collusion, and Risk-Taking in Tournaments
    21.1 Helping and Sabotage in Tournaments
    21.2 Collusion in Tournaments
    21.3 Tournaments and Risk-Taking

    Chapter 22: Unfair and Uneven Tournaments
    22.1 Effort and the Probability of Winning the Tournament
    22.2 Evidence on Asymmetric Tournaments: The Tiger Woods Effect
    22.3 Addressing Ability Differences in Tournaments: Leagues, Handicaps, and Affirmative Action
    22.4 Ability Differences in Multistage Contests and Promotion Ladders

    Chapter 23: Who Wants to Compete? Selection into Tournaments
    23.1 Ability, Risk Aversion, and Tournament Entry
    23.2 Gender, Confidence, and Competitiveness

    PART FIVE: Teams

    Chapter 24: Incentives in Teams and the Free-Rider Problem
    24.1 Some Definitions
    24.2 Efficiency: Which Effort Levels Maximize the Size of the Pie?
    24.3 Sharing Rules and the Free-Rider (1/N) Problem
    24.4 Group Piece Rates, Group Bonuses, and Free-Riding in Teams

    Chapter 25: Team Production in Practice
    25.1 Altruistic Punishment and Team Performance
    25.2 Can Team-Based Pay Outperform Individual Pay? Peer Pressure on Campus
    25.3 Team Incentives In A Garment Factory: Why So Successful?

    Chapter 26: Complementarity, Substitutability, and Ability Differences in Teams
    26.1 Complementarity and Substitutability: Definitions and Evidence
    26.2 Team Effort Choices under Extreme Complementarity
    26.3 Team Effort Choices under Moderate Complementarity
    26.4 Team Effort Choices under Substitutability
    26.5 Effort, Ability Differences, and Optimal Team Size

    Chapter 27: Choosing Teams: Self-Selection and Team Assignment
    27.1 Who Wants To Join Teams? Ability Differences and Self-Selection
    27.2 Skill Diversity, Information Sharing, and Team Performance

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