A LARGE BODY of theoretical research in economics models firms’ choices of employment practices. For example, a number of studies model the choice of compensation practices, such as profit sharing, efficiency wages, piece rates, team rewards, or other pay-for-productivity plans. Other work focuses not on compensation practices but on other work practices, such as the use of work teams, screening of workers, and sharing of financial information with workers. Finally, other studies model the adoption of clusters of practices rather than individual practices. These models typically explain the observed variation in firms’ work practices by pointing to differences in factors, such as the cost of observing employee effort, the separability of employee effort, the separability of employee tasks on the job, or the relative value of quality versus quantity in the profit function of each firm.