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Respect and relational contracts

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  • Tor Eriksson

    ()
    (Department of economics - University of Aarhus)

  • Marie-Claire Villeval

    (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon)

Abstract

Assuming that people care not only about what others do but also on what others think, we study respect in a labor market context where the length of the employment relationship is endogenous. In our three-stage gift-exchange experiment, the employer can express respect by giving the employee costly symbolic rewards after observing his level of effort. We study whether symbolic rewards are used by the employers mainly to praise employees or as a coordination device to build relational contracts by manipulating the balance between labor demand and supply in the market. We find that a high proportion of long-term relationships have been initiated by the assignment of symbolic rewards. However, the assignment of symbolic rewards decreases when it becomes clear that the relationship is durable, suggesting that employers mainly use symbolic rewards as a coordination device to initiate relational contracts. Compared to the balanced market condition, assigning symbolic rewards in initial relationships is less likely when there is excess demand in the market and more likely when there is excess supply, i.e. when the relationship is more valuable. Receiving symbolic rewards increases the employees' likelihood of accepting to continue the relationship with the same employer. It also motivates them to increase their effort further but only when the market is balanced. Overall, the ability to assign symbolic rewards does not give rise to higher profits because it is associated with lower rents offered to the employees on average, leading to lower effort levels.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00642527.

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Date of creation: 2012
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Publication status: Published, Journal of Economic Behavior and Organization, 2012, 81, 1, pp. 286-298
Handle: RePEc:hal:journl:halshs-00642527

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00642527
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Related research

Keywords: Respect; Symbolic rewards; Coordination; Signaling; Labor market; Experiment;

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References

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Cited by:
  1. Benndorf, Volker & Rau, Holger A., 2012. "Competition in the workplace: An experimental investigation," DICE Discussion Papers 53, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Casoria Fortuna & Riedl Arno, 2012. "Experimental labor markets and policy considerations: Incomplete contracts and macroeconomic aspects," Research Memorandum 058, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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