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Altruism and Relational Incentives in the Workplace

  • Dur, Robert


    (Erasmus University Rotterdam)

  • Tichem, Jan


    (Erasmus University Rotterdam)

This paper studies how altruism between managers and employees affects relational incentive contracts. To this end we develop a simple dynamic principal-agent model where both players may have feelings of altruism or spite toward each other. The con- tract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal. We find that altruism undermines the credibility of a threat of dis- missal but strengthens the credibility of a bonus. Among others, these two mechanisms imply that higher altruism sometimes leads to higher bonuses, while lower altruism may increase productivity and players utility in equilibrium.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7363.

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Length: 34 pages
Date of creation: Apr 2013
Date of revision:
Publication status: forthcoming in: Journal of Economics and Management Strategy, 2015
Handle: RePEc:iza:izadps:dp7363
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