Tomislav Vukina (North Carolina State University), “Salaries or Piece Rates: The Importance of Endogenous Matching between Harvest Workers and Crops”, Agricultural and Food Industrial Organization Seminar, Toulouse: TSE, December 10, 2009, 11:00–12:30, room MF 429.
The objective of this paper is to determine whether the choice of payment schemes (hourly versus piece rates) can be systematically explained by the risk aversion of the workers that select them. Most of the previous empirical literature tested the inverse relationship between risk and incentives based on the prediction of the single principal- agent pair model and found mixed results. We derive the equilibrium endogenous matching relationship between agents' risk aversion and the power of contract incen tives in a market with many heterogenous principals and agents. Depending on whether the underlying matching between agents' risk aversion and the riskiness of the jobs is of positive assortative or negative assortative type, the relationship is either negative or undetermined. Using confidential data from the National Agricultural Workers Survey (NAWS), we found a weak empirical evidence of matching between agricultural work- ers risk aversion and crops they harvest. When controlling for endogenous matching our results show that high risk-averse workers choose hourly rates and low risk-averse workers choose piece rates.