Luck in a Flat Hierarchy: Wages, bonuses and noise.

John Sessions* (Corresponding Author), John Skatun

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


We study bonuses in a flat hierarchy and find effort optimality to be violated a two worker-type model with noisy performance indicators. Dedicated workers extract informational rents from firms whilst slack worker effort is inefficiently low. Whilst increases in measurement noise reduce the supply-side effort effects of increasing bonuses. Our model helps to explain empirical observations that bonuses are more prevalent and larger in jobs with noisy environments, such as within the financial sector.
Original languageEnglish
Pages (from-to)373-391
Number of pages19
JournalThe Economic Record
Issue number323
Early online date21 Oct 2022
Publication statusPublished - 19 Dec 2022


  • Bonuses
  • banks
  • informational rent


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