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Gift-Exchange, Incentives, and Heterogeneous Workers

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  • Arjan Non

    (Erasmus University Rotterdam)

Abstract

Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal their altruism by offering a generous contract, consisting of a base salary and an output-contingent bonus. I find that principals signal their altruism by offering relatively weak incentives and a relatively high expected total compensation, but the latter does not necessarily hold. Furthermore, since some agents 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. I show that such a contract is characterised by excessively strong incentives and relatively high expected total compensation.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-008/1.

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Date of creation: 06 Jan 2010
Date of revision: 31 May 2011
Handle: RePEc:dgr:uvatin:20100008

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Web page: http://www.tinbergen.nl

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

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Citations

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

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