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Respect and relational contracts

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  • Eriksson, Tor
  • Villeval, Marie Claire

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.

Suggested Citation

  • Eriksson, Tor & Villeval, Marie Claire, 2012. "Respect and relational contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 286-298.
  • Handle: RePEc:eee:jeborg:v:81:y:2012:i:1:p:286-298
    DOI: 10.1016/j.jebo.2011.10.019
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    1. repec:kap:expeco:v:20:y:2017:i:2:d:10.1007_s10683-016-9485-0 is not listed on IDEAS
    2. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    3. Kvaløy, Ola & Nieken, Petra & Schöttner, Anja, 2015. "Hidden benefits of reward: A field experiment on motivation and monetary incentives," European Economic Review, Elsevier, vol. 76(C), pages 188-199.
    4. Valeria Maggian & Natalia Montinari & Antonio Nicolò, 2015. "Backscratching in Hierarchical Organizations," Working Papers 299, University of Milano-Bicocca, Department of Economics, revised Apr 2015.
    5. Yola Engler & Lionel Page, 2017. "Driving a Hard Bargain is a Balancing Act: How social preferences constrain the negotiation process," QuBE Working Papers 051, QUT Business School.
    6. Marie Claire Villeval, 2016. "Can lab experiments help design personnel policies?," IZA World of Labor, Institute for the Study of Labor (IZA), pages 318-318, November.
    7. Benndorf, Volker & Rau, Holger A., 2012. "Competition in the workplace: An experimental investigation," DICE Discussion Papers 53, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Neckermann, Susanne & Yang, Xiaolan, 2017. "Understanding the (unexpected) consequences of unexpected recognition," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 131-142.
    9. Xiaofei Pan & Daniel Houser, 2017. "Social approval, competition and cooperation," Experimental Economics, Springer;Economic Science Association, vol. 20(2), pages 309-332, June.
    10. repec:eee:jeborg:v:147:y:2018:i:c:p:76-94 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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