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Altruism and Relational Incentives in the Workplace

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  • Dur, Robert

    ()
    (Erasmus University Rotterdam)

  • Tichem, Jan

    ()
    (Erasmus University Rotterdam)

Abstract

This paper studies how altruism between managers and employees affects relational incentive contracts. To this end we develop a simple dynamic principal-agent model where both players may have feelings of altruism or spite toward each other. The con- tract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal. We find that altruism undermines the credibility of a threat of dis- missal but strengthens the credibility of a bonus. Among others, these two mechanisms imply that higher altruism sometimes leads to higher bonuses, while lower altruism may increase productivity and players utility in equilibrium.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7363.

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Length: 34 pages
Date of creation: Apr 2013
Date of revision:
Publication status: forthcoming in: Journal of Economics and Management Strategy
Handle: RePEc:iza:izadps:dp7363

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Related research

Keywords: subjective performance evaluation; efficiency wages; relational contracts; incentives; spite; altruism; Nash bargaining;

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References

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  24. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
  25. Brown, Martin & Falk, Armin & Fehr, Ernst, 2003. "Relational Contracts and the Nature of Market Interactions," IZA Discussion Papers 897, Institute for the Study of Labor (IZA).
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