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Social Connections and Incentives in the Workplace: Evidence From Personnel Data

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Author Info
Oriana Bandiera
Iwan Barankay
Imran Rasul

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Abstract

We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort toward high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance. Copyright 2009 The Econometric Society.

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File URL: http://hdl.handle.net/10.3982/ECTA6496
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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 77 (2009)
Issue (Month): 4 (07)
Pages: 1047-1094
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Handle: RePEc:ecm:emetrp:v:77:y:2009:i:4:p:1047-1094

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  5. Sandra E. Black & Philip E. Strahan, 2001. "The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry," American Economic Review, American Economic Association, vol. 91(4), pages 814-831, September. [Downloadable!] (restricted)
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  8. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Blackwell Publishing, vol. 70(3), pages 489-520, 07. [Downloadable!] (restricted)
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  12. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June. [Downloadable!] (restricted)
  13. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1371-1411, November. [Downloadable!] (restricted)
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  15. Laband, David N & Piette, Michael J, 1994. "Favoritism versus Search for Good Papers: Empirical Evidence Regarding the Behavior of Journal Editors," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 194-203, February. [Downloadable!] (restricted)
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  17. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February. [Downloadable!] (restricted)
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  18. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Daniel S. Hamermesh, 2007. "Fun with Matched Firm-Employee Data: Progress and Road Maps," IZA Discussion Papers 2580, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Erich Battistin & Clara Graziano & G. Parigi, 2008. "Connections and Performance in Bankers' Turnover: Better Wed over the Mixen than over the Moor," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Antoni Cunyat & Randolph Sloof, 2008. "Employee Types and Endogenous Organizational Design," Tinbergen Institute Discussion Papers 08-019/1, Tinbergen Institute. [Downloadable!]
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