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Social Exchange and Common Agency in Organizations

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  • Robert Dur

    ()
    (Erasmus Universiteit Rotterdam)

  • Hein Roelfsema

    ()
    (Utrecht University)

Abstract

We study the relation between formal incentives and social exchange in organizations where employees work for several managers and reciprocate to 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 effort is contractible and attention is not, the first-best can be achieved through bonus pay for both managers and employees. When neither effort nor attention 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 derive the implications of these contract imperfections for optimal organizational design.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-111/1.

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Date of creation: 19 Dec 2006
Date of revision: 15 Oct 2008
Handle: RePEc:dgr:uvatin:20060111

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Keywords: social exchange; reciprocity; incentive contracts; common agency; organizational design;

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Citations

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Cited by:
  1. Robert Dur & Arjan Non & Hein Roelfsema, 2009. "Reciprocity and Incentive Pay in the Workplace," SOEPpapers on Multidisciplinary Panel Data Research 177, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. 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.
  3. 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).
  4. 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.
  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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