ABSTRACT
A number of conceptual distinctions need to be made in order for the connections between deserved income and incentive income to be explored. An allocation of jobs will be said to be more efficient if it increases the social product, given the available resources and the preferences of individuals. The social product is more difficult to define. An economic rent is earned by a factor input when payment to that factor is in excess of the amount necessary to keep it in its current employment. Pecuniary incentives provide people with a reason for switching to a particular job in preference to an alternative. Incentive payments are required to make the allocation of jobs more efficient. Incentives are used to allocate resources more efficiently and hence to raise the social product. Compensation can be used to determine pay rates between occupations or it can be individualized to varying degrees.
