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Heterogeneous social preferences, screening, and employment contracts

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  • Ferdinand A. von Siemens
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    Abstract

    This paper studies a monopsonistic firm's optimal employment contracts if workers have private information on both their propensity for social comparisons and their ability. Employees of the firm are taken to form their own distinct reference group. It is shown that screening workers with equal ability according to their social preferences is then not possible within the firm. In consequence, the firm distorts production by its employees with low ability, or it excludes workers with low ability and a high propensity for social comparisons. This highlights that firms can use both contractual and organizational measures to reduce the costs arising from workers' social preferences. Further, information on workers' social preferences reduces the latter's impact on employment contracts without changing it qualitatively. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Oxford Economic Papers.

    Volume (Year): 63 (2011)
    Issue (Month): 3 (July)
    Pages: 499-522

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    Handle: RePEc:oup:oxecpp:v:63:y:2011:i:3:p:499-522

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    Cited by:
    1. Jan Tichem, 2013. "Leniency Bias in Long-Term Workplace Relationships," Tinbergen Institute Discussion Papers, Tinbergen Institute 13-196/VII, Tinbergen Institute.
    2. Maria Micevski, 2013. "Reciprocity, Matching, and Wage Competition," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2013-25, Department of Economics, University of Konstanz.
    3. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers, Tinbergen Institute 12-054/1, Tinbergen Institute.
    4. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," CESifo Working Paper Series, CESifo Group Munich 3826, CESifo Group Munich.
    5. Dominik Erharter, 2013. "Screening Experts' Distributional Preferences," Working Papers, Faculty of Economics and Statistics, University of Innsbruck 2013-27, Faculty of Economics and Statistics, University of Innsbruck.
    6. Arce, Daniel G., 2013. "Principals’ preferences for agents with social preferences," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 90(C), pages 154-163.
    7. Giebe, Thomas & Gürtler, Oliver, 2012. "Optimal contracts for lenient supervisors," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 81(2), pages 403-420.

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