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Why are Small Firms Different? Managers’ Views

  • Jonas Agell

Do incentives in small organizations differ from those in large ones? This paper uses a representative survey of compensation managers to shed light on the issues. I find that (i) small establishments rely less on pecuniary incentives, and have a significantly more hostile attitude towards incentive schemes based on competition and relative rewards; (ii) large units are more vulnerable to mechanisms of efficiency wages, effects that remain even as I control for differences in monitoring ability; (iii) large units are more prone to indicate that negative reciprocity is important, and that their employees care about relative pay. I argue that these findings fit with behavioral stories of incentives and motivation, in particular those stressing group interaction effects, inequity aversion and gift exchange.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1076.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1076
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  13. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May.
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  16. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  17. Susan Helper, 2000. "Economists and Field Research: "You Can Observe a Lot Just by Watching."," American Economic Review, American Economic Association, vol. 90(2), pages 228-232, May.
  18. Erica L. Groshen, 1988. "Why do wages vary among employers?," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 19-38.
  19. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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