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Personal Relations and their Effect on Behavior in an Organizational Setting: An Experimental Study

We study how personal relations affect performance in organizations. In the experimental game we use a manager has to assign different degrees of decision power to two employees. These two employees then have to make distributive decisions which affect themselves and the manager. Our focus is on the effects on managers' assignment of decision power and on employees' distributive decisions of one of the employees and the manager knowing each other personally. Our evidence shows that managers tend to favor employees that they personally know and that these employees tend, more than other employees, to favor the manager in their distributive decisions. However, this behavior does not affect the performance of the employees that do not know the manager. All these effects are independent of whether the employees that know the manager are more or less productive than those who do not know the manager. The results shed light on discrimination and nepotism and its consequences for the performance of family firms and other organizations.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 692.07.

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Length: 36
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:aub:autbar:692.07
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  1. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
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  13. Falk, Armin & Zehnder, Christian, 2007. "Discrimination and In-Group Favoritism in a Citywide Trust Experiment," IZA Discussion Papers 2765, Institute for the Study of Labor (IZA).
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  16. Hoffman, Elizabeth & McCabe, Kevin & Smith, Vernon L, 1996. "Social Distance and Other-Regarding Behavior in Dictator Games," American Economic Review, American Economic Association, vol. 86(3), pages 653-60, June.
  17. Demsetz, Harold & Villalonga, Belen, 2001. "Ownership structure and corporate performance," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 209-233, September.
  18. Bruno S. Frey & Iris Bohnet, 1999. "Social Distance and Other-Regarding Behavior in Dictator Games: Comment," American Economic Review, American Economic Association, vol. 89(1), pages 335-339, March.
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  21. H. Elizabeth Peters & A. Sinan Unur & Jeremy Clark & William D. Schulze, 2004. "Free-Riding and the Provision of Public Goods in the Family: A Laboratory Experiment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 283-299, 02.
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