Entrepreneurs' education and different variable pay schemes in Italian firms

Abstract

Technical Report. This paper investigates the influence of the education of entrepreneurs, which we hypothesise to be a signal of talent, on the adoption of variable pay (VP) schemes in the Italian economy. We estimate to what extent differences in the diffusion of VP between Italian firms reflect differences in the quality of entrepreneurs. Our estimates, which we obtained by taking both endogeneity and unobserved heterogeneity into account, validate hypotheses about the direct positive effects of entrepreneurs’ education on the adoption of VP schemes. Furthermore, we ascertain the role of entrepreneurs’ education by examining its influence on the choice between different types of VP bonuses at the individual, group, or establishment levels. Our results suggest that highly educated entrepreneurs are more likely to use individual or collective forms of VP schemes at the establishment level rather than team VP incentives. 04/2013