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Heterogeneous social preferences, screening, and employment contracts

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  • Ferdinand A. von Siemens

Abstract

This paper studies a monopsonistic firm's optimal employment contracts if workers have private information on both their propensity for social comparisons and their ability. Employees of the firm are taken to form their own distinct reference group. It is shown that screening workers with equal ability according to their social preferences is then not possible within the firm. In consequence, the firm distorts production by its employees with low ability, or it excludes workers with low ability and a high propensity for social comparisons. This highlights that firms can use both contractual and organizational measures to reduce the costs arising from workers' social preferences. Further, information on workers' social preferences reduces the latter's impact on employment contracts without changing it qualitatively. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

Suggested Citation

  • Ferdinand A. von Siemens, 2011. "Heterogeneous social preferences, screening, and employment contracts," Oxford Economic Papers, Oxford University Press, vol. 63(3), pages 499-522, July.
  • Handle: RePEc:oup:oxecpp:v:63:y:2011:i:3:p:499-522
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    File URL: http://hdl.handle.net/10.1093/oep/gpq028
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    Cited by:

    1. Gürtler, Marc & Gürtler, Oliver, 2014. "The interaction of explicit and implicit contracts: A signaling approach," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 135-146.
    2. Choi, Kangsik, 2016. "A Note On Envy And Earnings Inequality Under Limited Liability Contracts," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 57(1), pages 91-109, June.
    3. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
    4. Giebe, Thomas & Gürtler, Oliver, 2012. "Optimal contracts for lenient supervisors," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 403-420.
    5. Maria Micevski, 2013. "Reciprocity, Matching, and Wage Competition," Working Paper Series of the Department of Economics, University of Konstanz 2013-25, Department of Economics, University of Konstanz.
    6. Gill, David & Stone, Rebecca, 2015. "Desert and inequity aversion in teams," Journal of Public Economics, Elsevier, vol. 123(C), pages 42-54.
    7. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    8. Botond Köszegi, 2014. "Behavioral Contract Theory," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 1075-1118, December.
    9. Dominik Erharter, 2013. "Screening Experts' Distributional Preferences," Working Papers 2013-27, Faculty of Economics and Statistics, University of Innsbruck.
    10. Manna, Ester, 2016. "Envy in the workplace," Economics Letters, Elsevier, vol. 142(C), pages 18-21.
    11. Arce, Daniel G., 2013. "Principals’ preferences for agents with social preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 154-163.
    12. Jan Tichem, 2013. "Leniency Bias in Long-Term Workplace Relationships," Tinbergen Institute Discussion Papers 13-196/VII, Tinbergen Institute.
    13. F. Barigozzi & E. Manna, 2017. "Envy in Mission-Oriented Organizations," Working Papers wp1108, Dipartimento Scienze Economiche, Universita' di Bologna.

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