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Gift-Exchange, Incentives, and Heterogeneous Workers

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  • Arjan Non

Abstract

By incorporating reciprocity in an otherwise standard principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some, but not all, workers care more for their principal when they are convinced that the principal cares for them. The principal can be egoistic or altruistic. Absent worker heterogeneity, an altruistic principal signals his altruism by offering relatively weak incentives and a relatively high expected total compensation. However, the latter is not always required to credibly signal altruism. Furthermore, since some workers do not reciprocate the principal’s altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. Such a contract is characterised by excessively strong incentives and a relatively high expected total compensation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3547.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3547

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Keywords: reciprocity; gift-exchange; signaling game; incentive contracts; screening;

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References

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Cited by:
  1. Bradler, Christiane & Dur, Robert & Neckermann, Susanne & Non, Arjan, 2013. "Employee recognition and performance: A field experiment," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-017, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. repec:dgr:uvatin:2012054 is not listed on IDEAS
  3. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
  4. Dur, Robert & Tichem, Jan, 2013. "Altruism and Relational Incentives in the Workplace," IZA Discussion Papers 7363, Institute for the Study of Labor (IZA).
  5. Jan Tichem, 2013. "Leniency Bias in Long-Term Workplace Relationships," Tinbergen Institute Discussion Papers 13-196/VII, Tinbergen Institute.
  6. von Siemens, Ferdinand A., 2013. "Intention-based reciprocity and the hidden costs of control," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 92(C), pages 55-65.
  7. repec:dgr:uvatin:2013038 is not listed on IDEAS

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