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Reciprocity and Incentive Pay in the Workplace

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Author Info
Robert Dur
Arjan Non
Hein Roelfsema

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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 DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers with number 177.

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Length: 36 p.
Date of creation: 2009
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Handle: RePEc:diw:diwsop:diw_sp177

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

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Find related papers by JEL classification:
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
M54 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Management
M55 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Contracting Devices

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