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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, 2004. "Incentives and Discrimination," American Economic Review, American Economic Association, vol. 94(3), pages 764-773, June.
  2. 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.
  3. 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.
  4. 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.
  5. Uri Gneezy & John A. List, 2006. "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," NBER Working Papers 12063, National Bureau of Economic Research, Inc.
  6. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
  7. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," NBER Working Papers 0278, National Bureau of Economic Research, Inc.
  8. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
  9. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  10. 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.
  11. John A. List & Imran Rasul, 2010. "Field Experiments in Labor Economics," NBER Working Papers 16062, National Bureau of Economic Research, Inc.
  12. Sebastian Kube & Michel André Maréchal & Clemens Puppe, 2013. "Do Wage Cuts Damage Work Morale? Evidence From A Natural Field Experiment," Journal of the European Economic Association, European Economic Association, vol. 11(4), pages 853-870, 08.
  13. 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).
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
  20. 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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