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

Author Info

  • Abeler, Johannes

    ()

    (University of Oxford)

  • Altmann, Steffen

    ()

    (University of Copenhagen)

  • Goerg, Sebastian

    ()

    (Florida State University)

  • Kube, Sebastian

    ()

    (University of Bonn)

  • Wibral, Matthias

    ()

    (Maastricht University)

Abstract

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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Keywords: laboratory experiments; wage setting; equity; gift exchange; reciprocity; incomplete contracts; incentives; organizational economics;

Find related papers by JEL classification:

  • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
  • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
  • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
  • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
  • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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  1. Brandts, Jordi & Solà, Carles, 2010. "Personal relations and their effect on behavior in an organizational setting: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 246-253, February.
  2. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, Oxford University Press, vol. 95(4), pages 703-736.
  3. Gary Charness & Peter J. Kuhn, 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," NBER Working Papers 15913, National Bureau of Economic Research, Inc.
  4. 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).
  5. Gächter, Simon & Nosenzo, Daniele & Sefton, Martin, 2008. "The Impact of Social Comparisons on Reciprocity," IZA Discussion Papers 3639, Institute for the Study of Labor (IZA).
  6. Simon Gaechter & Christian Thoeni, 2009. "Social Comparison and Performance: Experimental Evidence on the Fair Wage-Effort Hypothesis," Discussion Papers 2009-23, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  7. 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.
  8. Goerg, Sebastian & Kube, Sebastian & Zultan, Ro'i, 2009. "Treating Equals Unequally: Incentives in Teams, Workers' Motivation and Production Technology," IZA Discussion Papers 3959, Institute for the Study of Labor (IZA).
  9. 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.
  10. Sebastian Kube & Michel Andr� Mar�chal & Clemens Puppe, 2010. "The currency of reciprocity - gift-exchange in the workplace," IEW - Working Papers 377, Institute for Empirical Research in Economics - University of Zurich, revised Aug 2011.
  11. 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).
  12. Abeler, Johannes & Altmann, Steffen & Kube, Sebastian & Wibral, Matthias, 2009. "Gift Exchange and Workers' Fairness Concerns: When Equality Is Unfair," IZA Discussion Papers 4262, Institute for the Study of Labor (IZA).
  13. 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.
  14. Imran Rasul & John List, 2010. "Field experiments in labor economics," Artefactual Field Experiments 00092, The Field Experiments Website.
  15. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
  16. John List & Steven Levitt, 2007. "What do Laboratory Experiments Measuring Social Preferences Reveal About the Real World," Artefactual Field Experiments 00480, The Field Experiments Website.
  17. Sebastian Kube & Michel Andr� Mar�chal & 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.
  18. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August.
  19. Eyal Winter, 2004. "Incentives and Discrimination," American Economic Review, American Economic Association, vol. 94(3), pages 764-773, June.
  20. 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.
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Cited by:

  1. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2006. "Gift Exchange and the Separation of Ownership and Control," Tinbergen Institute Discussion Papers 06-037/1, Tinbergen Institute.

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