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Social exchange and common agency in organizations

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  • Dur, Robert
  • Roelfsema, Hein

Abstract

We study the relation between formal incentives and social exchange in organizations where employees work for several managers and reciprocate a manager's attention with higher effort. To this end we develop a common agency model with two-sided moral hazard. We show that when management attention is not contractible, the first-best can only be achieved by granting autonomy to employees together with incentive pay for both managers and employees. When neither attention nor effort are contractible, an 'attention race' arises, as each manager tries to sway the employee's effort his way. While this may result in too much social exchange, the attention race may also be a blessing because it alleviates managers' moral-hazard problem in attention provision. Lastly, we show how organizational structure can be used to motivate managers and employees in the absence of formal incentives.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

Volume (Year): 39 (2010)
Issue (Month): 1 (January)
Pages: 55-63

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Handle: RePEc:eee:soceco:v:39:y:2010:i:1:p:55-63

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Web page: http://www.elsevier.com/locate/inca/620175

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Keywords: Social exchange Reciprocity Incentive contracts Common agency Organizational design;

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Cited by:
  1. Marco Kleine & Pascal Langenbach & Lilia Zhurakhovska, 2013. "How Voice Shapes Reactions to Impartial Decision Makers: An Experiment," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2013_11, Max Planck Institute for Research on Collective Goods, revised Feb 2014.
  2. Vanessa Mertins & Henrik Egbert & Tanja Koenen, 2011. "The Effects of Individual Judgments about Selection Procedures: Results from a Power-to-Resist Game," IAAEG Discussion Papers until 2011 201108, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  3. Dur, Robert & Non, Arjan & Roelfsema, Hein, 2010. "Reciprocity and Incentive Pay in the Workplace," IZA Discussion Papers 4782, Institute for the Study of Labor (IZA).
  4. Bas, Maria & Ledezma, Ivan, 2007. "Market Access and the Evolution of within Plant Productivity in Chile," Economics Papers from University Paris Dauphine 123456789/6913, Paris Dauphine University.
  5. Benedetto Gui & Luca Stanca, 2010. "Happiness and relational goods: well-being and interpersonal relations in the economic sphere," International Review of Economics, Springer, vol. 57(2), pages 105-118, June.

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