QUARTERLY JOURNAL OF ECONOMICS mance, how much to reward seniority, whether it is fair to create income inequalities, and so on. In the wage adjustments that occurred in 1977-1978 and 1979-1980. for instance the"evalua tions often became conflict-ridden, dragging on month after month affecting morale, and creating dissatisfaction among those not chosen to receive raises"[Walder, p. 27]. Thus, managers may be reluctant to introduce incentive schemes, even if they are being ncouraged to do so by the state The managers must be given sor positive inducement to bear the costs involved in introducing yorker incentives. In addition, the rules that govern bonuses may affect the ability of managers to institute effective incentive- payment schemes. When bonuses were first revived, the total amount that could be paid in bonuses was fixed at a specified percentage of the wage bill, typically 10 percent. With total incentive payments limited, and growing only as rapidly as the basic wage workers correctly treated bonus distribution as a ero-sum game and resisted differentiation. In 1984 the limit on onuses was replaced by a progressive bonus tax paid by the enterprise. With this change, workers may have begun to perceive bonus distribution as a positive-sum game, reducing the costs incurred by management in instituting effective incentive-payment schemes. during the course of the 1980s, increased authority and autonomy granted to managers may have increased the effective- ness with which bonuses were used to elicit work effort granting the manager autonomy changes the managers incentives over the design of the workers'incentive system ccording to the MeAfee-McMillan [1991] model. Making it the manager's role to decide output, rather than merely to pass information up to the center, changes the managers personal calculus. When decisions are made at the center, they are made using information supplied by the manager. It is in the manager's interest to exploit whatever bargaining power is to be obtained from his information. Thus, the information on which the center bases its decision is distorted. When the buck stops at the manager, more efficient decisions are made because there are now fewer transmission ch manager would be expected to introduce performance payments to induce more effort from workers As well as immediate monetary rewards, workers can be given rt incentives by facing the prospect of losing their job. An additional consequence of output autonomy, therefore, is that managers will expand their ability to fire workers. Most workers in