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Licensed Unlicensed Requires Authentication Published by De Gruyter October 11, 2009

Beyond Moral Hazard: The Effect of Firm-Level Compensation Strategies on Economic Conflict

Veneta Andonova and Hernando Zuleta

In many countries governments are helpless to prevent appropriation, whatever the degree of protection promised by the law. In this context, we use a simple model where workers can either work peacefully or join a guerrilla movement that expropriates entrepreneurs. We find one low-income, low-wage equilibrium with guerrilla activity and one peaceful, high-income, high-wage equilibrium. We show that the peaceful equilibrium can be reached if entrepreneurs implement standard remedies for the internal principal-agent problem such as efficiency wages.

Published Online: 2009-10-11

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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