Abstract
This paper asks how a firm combines bonus payments with job assignments (through which it affects an employee's self-efficacy) to provide incentives. We show that the firm chooses an inefficient job assignment rule to enhance the employee's self-efficacy. The higher the employee's self-efficacy, the higher his work motivation and thus the lower the bonus the firm has to pay. Thus distortions in the job assignment lead to losses in production, but savings in the wage bill. This finding provides an explanation for why firms do not separate job assignments from the provision of incentives.
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