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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


    (Maastricht University)

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. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," NBER Working Papers 0278, National Bureau of Economic Research, Inc.
  2. Christian Thöni & Simon Gächter, 2009. "Social Comparison and Performance: Experimental Evidence on the Fair Wage-Effort Hypothesis," University of St. Gallen Department of Economics working paper series 2009 2009-29, Department of Economics, University of St. Gallen.
  3. John A. List & Imran Rasul, 2010. "Field Experiments in Labor Economics," NBER Working Papers 16062, National Bureau of Economic Research, Inc.
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  6. Simon Gaechter & Daniele Nosenzo & Martin Sefton, 2010. "The Impact of Social Camparisons of Reciprocity," Discussion Papers 2010-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  7. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
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  10. Eyal Winter, 2003. "Incentives and Discrimination," Discussion Paper Series dp313, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  11. Johannes Abeler & Steffen Altmann & Sebastian Kube & Matthias Wibral, 2010. "Gift Exchange and Workers' Fairness Concerns: When Equality is Unfair," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1299-1324, December.
  12. Sebastian Kube & Michel Andre Marechal & Clemens Puppe, 2012. "The Currency of Reciprocity: Gift Exchange in the Workplace," American Economic Review, American Economic Association, vol. 102(4), pages 1644-62, June.
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  15. 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.
  16. 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.
  17. 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).
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