Ergonomics and Incentive Compensation
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Alessio D’Amato
Abstract
Ergonomics is frequently invoked to foster productivity, competitiveness, regulatory compliance, consumer welfare, and the fulfillment of organizational objectives. As a first step to integrate ergonomics in the theory of the firm, we use a simple but non-standard principal-agent model. The principal (the firm) sets monetary compensation, while also investing in decreasing the agent’s (a representative employee’s) marginal cost of effort – thanks to process ergonomics – and increasing consumers’ willingness-to-pay for a more user-friendly product – thanks to product ergonomics. Our main finding/prediction is that investing in ergonomics comes with relatively lower incentive pay but entails higher output. Some policy implications and potential research avenues are briefly discussed.
Acknowledgments
We wish to thank our Editor – Till Requate – and an anonymous reviewer for remarks and suggestions which lead to significant improvements in rigor and clarity. We are also grateful to participants at the Italian Association of Environmental and Resource Economists (IAERE) 2025 conference, the Italian Society of Public Economics (SIEP) 2025 conference, and Skema Business School’s KTO seminar series for useful feedback.
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Competing interests: The authors have no competing interests to declare.
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