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Social Exchange and Common Agency in Organizations

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  • R Dur
  • H.J. Roelfsema

Abstract

We study the relation between formal incentives and social exchange in organizations where employees work for several managers and reciprocate to a manager's attention with higher effort. To this end, we develop a common agency model with two-sided moral hazard. We show that when effort is contractible and attention is not, the first-best can be achieved through bonus pay for both managers and employees. When neither effort nor attention are contractible, an `attention race' arises, as each manager tries to sway the employee's effort his way. While this may result in too much social exchange, the attention race may also be a blessing because it alleviates managers' moral-hazard problem in attention provision. Lastly, we derive the implications of these contract imperfections for the optimal number of managers that share one employee.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 06-11.

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Date of creation: 2006
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Handle: RePEc:use:tkiwps:0611
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Find related papers by JEL classification:
  • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
  • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
  • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
  • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
  • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices

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Cited by:

  1. Marco Kleine & Pascal Langenbach & Lilia Zhurakhovska, 2013. "How Voice Shapes Reactions to Impartial Decision Makers: An Experiment," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2013_11, Max Planck Institute for Research on Collective Goods, revised Feb 2014.
  2. Dur, Robert & Non, Arjan & Roelfsema, Hein, 2010. "Reciprocity and Incentive Pay in the Workplace," IZA Discussion Papers 4782, Institute for the Study of Labor (IZA).
  3. Graham Mallard, 2014. "Static Common Agency And Political Influence: An Evaluative Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 17-35, 02.
  4. Benedetto Gui & Luca Stanca, 2010. "Happiness and relational goods: well-being and interpersonal relations in the economic sphere," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 57(2), pages 105-118, June.
  5. Vanessa Mertins & Henrik Egbert & Tanja Koenen, 2011. "The Effects of Individual Judgments about Selection Procedures: Results from a Power-to-Resist Game," IAAEG Discussion Papers until 2011 201108, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
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