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Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics

  • Abeler, Johannes

    ()

    (University of Oxford)

  • Altmann, Steffen

    ()

    (University of Copenhagen)

  • Goerg, Sebastian

    ()

    (Florida State University)

  • Kube, Sebastian

    ()

    (University of Bonn)

  • Wibral, Matthias

    ()

    (University of Bonn)

In this paper, we discuss recent evidence from economic experiments that study the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments: individual pay-for-performance schemes maximize efficiency but might lead to inequitable outcomes. We present findings from laboratory experiments that show under which circumstances partially incomplete contracts can create equitable work environments while at the same time reaching surprisingly efficient outcomes.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5727.

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Length: 36 pages
Date of creation: May 2011
Date of revision:
Publication status: published in: Analyse & Kritik, 2011, 33(1), 325-347
Handle: RePEc:iza:izadps:dp5727
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  1. Eyal Winter, 2003. "Incentives and Discrimination," Discussion Paper Series dp313, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  2. Jordi Brandts & Carles Solà, 2006. "Personal Relations and their Effect on Behavior in an Organizational Setting: An Experimental Study," UFAE and IAE Working Papers 692.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
  4. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
  5. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  6. Johannes Abeler & Stefen Altmann & Sebastian Kube & Matthias Wibral, 2009. "Gift Exchange and Workers' Fairness Concerns - When Equality Is Unfair," Discussion Papers 2009-11, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  7. Cohn, Alain & Fehr, Ernst & Herrmann, Benedikt & Schneider, Frédéric, 2011. "Social Comparison in the Workplace: Evidence from a Field Experiment," IZA Discussion Papers 5550, Institute for the Study of Labor (IZA).
  8. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
  9. James Konow, 2000. "Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions," American Economic Review, American Economic Association, vol. 90(4), pages 1072-1091, September.
  10. Kube, Sebastian & Maréchal, Michel André & Puppe, Clemens, 2011. "The currency of reciprocity - gift-exchange in the workplace," Working Paper Series in Economics 25, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
  11. Charness, Gary & Kuhn, Peter J., 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," IZA Discussion Papers 4941, Institute for the Study of Labor (IZA).
  12. Kölle, Felix & Sliwka, Dirk & Zhou, Nannan, 2011. "Inequality, Inequity Aversion, and the Provision of Public Goods," IZA Discussion Papers 5514, Institute for the Study of Labor (IZA).
  13. Sebastian Kube & Michel André Maréchal & Clemens Puppe, 2010. "Do wage cuts damage work morale? Evidence from a natural field experiment," IEW - Working Papers 471, Institute for Empirical Research in Economics - University of Zurich, revised Oct 2011.
  14. John List & Uri Gneezy, 2006. "Putting behavioral economics to work: Testing for gift exchange in labor markets using field experiments," Natural Field Experiments 00259, The Field Experiments Website.
  15. Sebastian J. Goerg & Sebastian Kube & Ro'i Zultan, 2010. "Treating Equals Unequally: Incentives in Teams, Workers' Motivation, and Production Technology," Journal of Labor Economics, University of Chicago Press, vol. 28(4), pages 747-772, October.
  16. Simon Gaechter & Daniele Nosenzo & Martin Sefton, 2008. "The Impact of Social Comparisons on Reciprocity," Discussion Papers 2008-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  17. Gächter, Simon & Thöni, Christian, 2010. "Social comparison and performance: Experimental evidence on the fair wage-effort hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 531-543, December.
  18. List, John A. & Rasul, Imran, 2011. "Field Experiments in Labor Economics," Handbook of Labor Economics, Elsevier.
  19. Gary Charness & Peter Kuhn, 2007. "Does Pay Inequality Affect Worker Effort? Experimental Evidence," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 693-723.
  20. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
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