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

Author

Listed:
  • Abeler, Johannes

    () (University of Oxford)

  • Altmann, Steffen

    () (University of Copenhagen)

  • Goerg, Sebastian J.

    () (Technische Universität München)

  • 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.

Suggested Citation

  • Abeler, Johannes & Altmann, Steffen & Goerg, Sebastian J. & Kube, Sebastian & Wibral, Matthias, 2011. "Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics," IZA Discussion Papers 5727, Institute for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp5727
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    References listed on IDEAS

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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. 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.
    3. 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.
    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. 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.
    6. 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, August.
    7. 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.
    8. 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.
    9. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    10. 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, September.
    11. 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 1644-1662, June.
    12. 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.
    13. 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.
    14. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
    15. List, John A. & Rasul, Imran, 2011. "Field Experiments in Labor Economics," Handbook of Labor Economics, Elsevier.
    16. 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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    Cited by:

    1. Maximiano, Sandra & Sloof, Randolph & Sonnemans, Joep, 2013. "Gift exchange and the separation of ownership and control," Games and Economic Behavior, Elsevier, vol. 77(1), pages 41-60.

    More about this item

    Keywords

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

    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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