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Respond to the question: Labour economics efficiency wage?

01/24/2001 10:59 AM by Brandon; Efficiency wage model
Hi Rodrigo! It's not from a textbook but from my LSE subject guide (for external students) on Managerial Economics, rather. The equation: (w+g)(1-p) + (bp) g(1-p)/p +b comes from the guide itself. This question appeared as
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01/23/2001 04:33 PM by Rodrigo;
Brandon, this looks like a question in some book. Please tell me which book this question is from, so that I can take a look at the specific model of efficiency-wages the question is about, and then try to help you. Regards. [View full text and thread]

01/19/2001 10:30 AM by Brandon; Labour economics (efficiency wage)
Hi! I was going through some questions on the above topic and didn't quite understand the following...hope to gather some insights :)

Question: Review the min cost implementation problem for efficiency wage and use this model to discuss whether efficiency wage would be higher/lower than in the standard model is employees dislike monitoring.

Here's what I managed to work out:
If workers do not care about monitoring (neutral), we need
(w+g)(1-p) + (bp) <w or w>g(1-p)/p +b
to induce honest behaviour, where w is wage, p is the probability of cheating being detected, g is gain from cheating, b is benefit from being fired.

Here's the part where I don't understand: if workers experience discomfort D(p), increasing in p, from monitoring then we need to satisfy a participant constraint:
w > b - D(p)

my question is why does the wage have to be more than the benefit minus the discomfort? Thank you very much :) [Manage messages]