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Reciprocity and Incentive Pay in the Workplace

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  • Robert Dur

    ()
    (Erasmus University Rotterdam, and CESifo)

  • Arjan Non

    ()
    (Erasmus University Rotterdam)

  • Hein Roelfsema

    ()
    (Utrecht University)

Abstract

We study optimal incentive contracts for workers who are reciprocal to management attention. When neither worker's effort nor manager's attention can be contracted, a double moral-hazard problem arises, implying that reciprocal workers should be given weak financial incentives. In a multiple-agent setting, this problem can be resolved using promotion incentives. We test these predictions using German Socio-Economic Panel data. We find that workers who are more reciprocal are significantly more likely to receive promotion incentives, while there is no such relation for individual bonus pay.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-080/1.

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Date of creation: 03 Sep 2008
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Handle: RePEc:dgr:uvatin:20080080

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Keywords: reciprocity; social exchange; incentive contracts; double moral hazard; GSOEP;

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