Abstract

I study the effect of fatigue and innate ability on performance in a model with incomplete contracts, lumpy tasks requiring multiple periods of work and stochastic productivity shocks. I find that increasing ability or reducing fatigue does not lead necessarily to more productive efficiency, since it may exacerbate the incentive for agents take "too much" on-the-job leisure. In a world with heterogenous agents, the problem may be ameliorated by the introduction of a dual labour market with free-lancers (who can take breaks at their discretion) and regular workers (who work on a fixed schedule).