Distraction and Incentives

Abhijit V. Banerjee and Sendhil Mullainathan

in Dimensions of Economic Theory and Policy

Published in print October 2011 | ISBN: 9780198073970
Published online September 2012 | e-ISBN: 9780199081615 | DOI:
Distraction and Incentives

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Efficiency wages have been proposed as a means to increase productivity by paying people higher than their outside option. In development economics, this means that paying workers higher wages will make them stronger and work harder. However, this theory has been criticized for being unrealistic, in part because it is not clear whether short-term spending on nutrition has a significant effect on work capacity. This chapter discusses the idea that poor people in developing countries are constantly dealing with problems not of their making (for example, flooding, no water or power, no money to buy medicines, and so on) and argues that this can decrease productivity. In the Banerjee-Mullainathan framework, attention can be purchased by acquiring so-called comfort goods (goods like health insurance or a house with a 24-hour power and water connection). This chapter explores how concerns about attention affect the design of incentives within a firm.

Keywords: efficiency wages; productivity; attention; incentives; comfort goods; Banerjee-Mullainathan framework

Chapter.  3782 words. 

Subjects: Microeconomics

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