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Work motivation, institutions, and performance

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  • Simon Gächter
  • Armin Falk

Abstract

In this paper we study experimentally four remedies to overcome inefficiencies that arise from the incompleteness of contracts. These remedies are reciprocity, repeated game effects, social embeddedness, and incentive contracts. In our baseline treatment we find that reciprocity is a powerful contract enforcement device. A second experiment establishes that repeated game effects interact with reciprocity in a complementary way, i.e., efficiency is increased compared to our baseline. Adding social approval incentives does not contribute significantly to efficiency. Finally, we show that explicit incentive contracts may have perverse effects in the sense that they "crowd out” reciprocity and therefore reduce efficiency compared to the baseline. In our concluding section we discuss the relation of our findings to the recent literature on "intrinsic motivation”.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 062.

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Handle: RePEc:zur:iewwpx:062

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Keywords: principal agent; incomplete contracts; experiments; work motivation;

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  1. Schlicht, Ekkehart, 1998. "On Custom in the Economy," OUP Catalogue, Oxford University Press, number 9780198292241, September.
  2. Georg Kirchsteiger & Martin Dufwenberg, 2000. "Reciprocity and wage undercutting," ULB Institutional Repository 2013/5905, ULB -- Universite Libre de Bruxelles.
  3. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
  4. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
  5. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  6. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  7. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  8. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  9. Herbert A. Simon, 1991. "Organizations and Markets," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 25-44, Spring.
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Cited by:
  1. Reto Foellmi & Urs Meister, 2004. "Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing," Working Papers 0032, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Aleksander Berentsen & Guillaume Rocheteau, 2003. "Money and the Gains from Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 263-297, February.
  3. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 915-944, October.
  4. Marie-Claire Villeval & David Dickinson, 2004. "Does Monitoring Decrease Work Effort ? The Complementarity Between Agency and Crowding-Out Theories," Working Papers 0409, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  5. Klaus Reiner Schenk-Hoppé & Björn Schmalfuss, . "Random Fixed Points in a Stochastic Solow Growth Model," IEW - Working Papers 065, Institute for Empirical Research in Economics - University of Zurich.
  6. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1621-1649, November.

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