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In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These "High-performance work systems" are difficult to understand in terms of standard moral hazard models. The authors show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. They document in particular the endogenous emergence of two fundamentally distinct types of employment strategies.
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