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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. Simon Gaechter & Daniele Nosenzo & Martin Sefton, 2010. "The Impact Of Social Comparisons On Reciprocity," Discussion Papers 2010-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Uri Gneezy & John A List, 2006. "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," Econometrica, Econometric Society, vol. 74(5), pages 1365-1384, 09.
  3. Simon Gächter & Christian Thöni, 2010. "Social Comparison and Performance: Experimental Evidence on the Fair Wage-Effort Hypothesis," Post-Print hal-00911823, HAL.
  4. Eyal Winter, 2004. "Incentives and Discrimination," American Economic Review, American Economic Association, vol. 94(3), pages 764-773, June.
  5. 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.
  6. 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.
  7. 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.
  8. John A. List & Imran Rasul, 2010. "Field Experiments in Labor Economics," NBER Working Papers 16062, National Bureau of Economic Research, Inc.
  9. 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.
  10. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  11. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
  12. Sebastian Goerg & Sebastian Kube & Ro'i Zultan, 2007. "Treating Equals Unequally - Incentives in Teams, Workers' Motivation and Production Technology," Bonn Econ Discussion Papers bgse17_2007, University of Bonn, Germany, revised Jan 2008.
  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. 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.
  15. 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.
  16. 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).
  17. 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.
  18. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  19. 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.
  20. 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.
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