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Backscratching in Hierarchical Organizations

Author

Listed:
  • Valeria Maggian
  • Natalia Montinari
  • Antonio Nicolò

Abstract

In this paper we investigate the role of reciprocity in sustaining the emergence of implicit collusive agreements in hierarchical organizations. We conduct a laboratory experiment in which an agent hires, on behalf of the principal, one worker out of two candidates. The two candidates differ in their ability and, once employed, the worker chooses a level of non-contractible effort to exert in two tasks: one benefits the organization (that is both the principal and the agent) while the other one is less profitable, only benefits the agent and provides him with higher earnings. We provide evidence that: i) low ability workers are more likely to exert effort in the task that is exclusively beneficial to the agent; ii) as a consequence, agents distort the hiring process in favor of the low ability workers and iii) sharing a small part of the organization's profits with the workers alleviates their effort distortion.

Suggested Citation

  • Valeria Maggian & Natalia Montinari & Antonio Nicolò, 2015. "Backscratching in Hierarchical Organizations," Working Papers 299, University of Milano-Bicocca, Department of Economics, revised Apr 2015.
  • Handle: RePEc:mib:wpaper:299
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    Keywords

    Con ict of Interest; Effort Distortion; Profit Sharing; and Reciprocity;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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