Discretion, Productivity, and Work Satisfaction

In Bartling, Fehr and Schmidt (2012) we show theoretically and
experimentally that it is optimal to grant discretion to workers if
(i) discretion increases productivity, (ii) workers can be screened
by past performance, (iii) some workers reciprocate high wages with
high effort and (iv) employers pay high wages leaving rents to
their workers. In this paper we show experimentally that the
productivity increase due to discretion is not only sufficient but
also necessary for the optimality of granting discretion to
workers. Furthermore, we report representative survey evidence on
the impact of discretion on workers’ welfare, confirming that
workers earn rents.