Institutions, social custom and efficiency wage models: Alternative approaches

This article reviews some efficiency wage models, and traces their alternative methodological and theoretical foundations. First, a distinction is made between models based on methodological individualism, and models which, by taking the social determination of preferences seriously, go beyond the limitations of that methodology. Second, a 'contractarian' and an 'interactive' solution are distinguished within the approach of methodological individualism, while a 'radical' and an 'anthropological' perspective are shown to coexist in the alternative approach. It is argued that the latter models share a more relativistic, less conservative attitude towards institutions and norms, and have interesting policy implications. © 1995 Academic Press Limited.