I went over it again and had a look at the linked paper.
The farmer originally had the minimum wage problem. The piece rate needed to keep everyone over minimum wage regardless of skill level or field quality. So
(Piece rate) = (Minimum Wage) / (the lowest performer's fruit quantity).
You can scale incentive on additional output, but it has to go up from there.
In this environment, he could probably work out a pay scale that works & it is to his advantage if worker earn more then minimum wage (because he probably pays less for marginal output).
Problem was that another productivity factor is the field. So, if he sets the above rate based on the worst field he is over paying workers on the best field. This is where 'generous' comes in. It means they were getting paid for being on a good field not working faster. His solution was scaling based on group productivity.
In a perfectly individualistic market, this is a good system . But the workers colluded to work less for the same pay (as opposed to getting paid more).
The economist 'fixed' that by removing the group incentive (they call it an externality) to pick less.
I think the most accurate description of Farmer Smith's intention would be to maximize the amount of productivity he received per dollar paid. production/cost = x Solve for x, maximizing x. His objective was to maximize x, not minimize cost.
The farmer originally had the minimum wage problem. The piece rate needed to keep everyone over minimum wage regardless of skill level or field quality. So
You can scale incentive on additional output, but it has to go up from there.In this environment, he could probably work out a pay scale that works & it is to his advantage if worker earn more then minimum wage (because he probably pays less for marginal output).
Problem was that another productivity factor is the field. So, if he sets the above rate based on the worst field he is over paying workers on the best field. This is where 'generous' comes in. It means they were getting paid for being on a good field not working faster. His solution was scaling based on group productivity.
In a perfectly individualistic market, this is a good system . But the workers colluded to work less for the same pay (as opposed to getting paid more).
The economist 'fixed' that by removing the group incentive (they call it an externality) to pick less.