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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. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 29(1), pages 1-17, January.
  2. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(2), pages 437-59, May.
  3. Schlicht, Ekkehart, 1998. "On Custom in the Economy," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198292241, October.
  4. Herbert A. Simon, 1991. "Organizations and Markets," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 5(2), pages 25-44, Spring.
  5. Dufwenberg, Martin & Kirchsteiger, Georg, 2000. "Reciprocity and wage undercutting," European Economic Review, Elsevier, Elsevier, vol. 44(4-6), pages 1069-1078, May.
  6. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, 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, American Economic Association, vol. 37(1), pages 7-63, March.
  8. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers, Rochester, Business - Managerial Economics Research Center 88-05, Rochester, Business - Managerial Economics Research Center.
  9. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
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Cited by:
  1. Dickinson, David & Villeval, Marie Claire, 2004. "Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories," IZA Discussion Papers 1222, Institute for the Study of Labor (IZA).
  2. Klaus Reiner Schenk-Hoppé & Björn Schmalfuss, . "Random Fixed Points in a Stochastic Solow Growth Model," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 065, Institute for Empirical Research in Economics - University of Zurich.
  3. Reto Foellmi & Urs Meister, 2004. "Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing," Working Papers, University of Zurich, Institute for Strategy and Business Economics (ISU) 0032, University of Zurich, Institute for Strategy and Business Economics (ISU).
  4. Aleksander Berentsen & Guillaume Rocheteau, . "On the Efficiency of Monetary Exchange:How Divisibility of Money Matters," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 101, Institute for Empirical Research in Economics - University of Zurich.
  5. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 263-297, February.
  6. Aleksander Berentsen & Guillaume Rocheteau, . "Money and Information," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 099, Institute for Empirical Research in Economics - University of Zurich.

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