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Reciprocity in Dynamic Employment Relationships

Author

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  • Matthias Fahn

    (Department of Economics, Johannes Kepler University Linz, 4040 Linz, Austria; CESifo, 81679 Munich, Germany)

Abstract

This paper analyzes a dynamic relational contract for employees with reciprocal preferences. A model of a long-term employment relationship is developed that implies that generous upfront wages activate the norm of reciprocity and then are more important when an employee is close to retirement. In earlier stages, direct incentives promising a bonus in exchange for effort are more effective. Hence, direct and reciprocity-based incentives reinforce each other and should be used in combination. Moreover, a more competitive labor market may increase the utilization of reciprocity-based incentives.

Suggested Citation

  • Matthias Fahn, 2023. "Reciprocity in Dynamic Employment Relationships," Management Science, INFORMS, vol. 69(10), pages 5816-5829, October.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:10:p:5816-5829
    DOI: 10.1287/mnsc.2022.4657
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