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Gift-Exchange, Incentives, and Heterogeneous Workers

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  • Arjan Non

    (Erasmus University Rotterdam)

Abstract

Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal their altruism by offering a generous contract, consisting of a base salary and an output-contingent bonus. I find that principals signal their altruism by offering relatively weak incentives and a relatively high expected total compensation, but the latter does not necessarily hold. Furthermore, since some agents do not reciprocate the principal's altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. I show that such a contract is characterised by excessively strong incentives and relatively high expected total compensation.

Suggested Citation

  • Arjan Non, 2010. "Gift-Exchange, Incentives, and Heterogeneous Workers," Tinbergen Institute Discussion Papers 10-008/1, Tinbergen Institute, revised 31 May 2011.
  • Handle: RePEc:tin:wpaper:20100008
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christiane Bradler & Robert Dur & Susanne Neckermann & Arjan Non, 2016. "Employee Recognition and Performance: A Field Experiment," Management Science, INFORMS, vol. 62(11), pages 3085-3099, November.
    2. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
    3. Robert Dur & Jan Tichem, 2015. "Altruism and Relational Incentives in the Workplace," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(3), pages 485-500, September.
    4. von Siemens, Ferdinand A., 2013. "Intention-based reciprocity and the hidden costs of control," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 55-65.
    5. Luca Livio, 2018. "Friends or Foes? Optimal Incentives for Reciprocal Agents," Working Papers ECARES 2018-03, ULB -- Universite Libre de Bruxelles.
    6. Jan Tichem, 2013. "Leniency Bias in Long-Term Workplace Relationships," Tinbergen Institute Discussion Papers 13-196/VII, Tinbergen Institute.
    7. Gürtler, Marc & Gürtler, Oliver, 2014. "The interaction of explicit and implicit contracts: A signaling approach," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 135-146.
    8. von Siemens, Ferdinand Alexander, 2015. "Team Production, Gender Diversity, and Male Courtship Behavior," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113009, Verein für Socialpolitik / German Economic Association.
    9. repec:eee:gamebe:v:109:y:2018:i:c:p:436-451 is not listed on IDEAS

    More about this item

    Keywords

    reciprocity; gift-exchange; signaling game; incentive contracts; screening;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices

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