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Work motivation, institutions, and performance

  • Simon Gächter
  • Armin Falk

In this paper we study experimentally four remedies to overcome inefficiencies that arise from the incompleteness of contracts. These remedies are reciprocity, repeated game effects, social embeddedness, and incentive contracts. In our baseline treatment we find that reciprocity is a powerful contract enforcement device. A second experiment establishes that repeated game effects interact with reciprocity in a complementary way, i.e., efficiency is increased compared to our baseline. Adding social approval incentives does not contribute significantly to efficiency. Finally, we show that explicit incentive contracts may have perverse effects in the sense that they "crowd out” reciprocity and therefore reduce efficiency compared to the baseline. In our concluding section we discuss the relation of our findings to the recent literature on "intrinsic motivation”.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 062.

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Handle: RePEc:zur:iewwpx:062
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  1. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May.
  2. Dufwenberg, Martin & Kirchsteiger, Georg, 2000. "Reciprocity and wage undercutting," European Economic Review, Elsevier, vol. 44(4-6), pages 1069-1078, May.
  3. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  4. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
  5. Aldo Rustichini & Uri Gneezy, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
  6. Schlicht, Ekkehart, 1998. "On Custom in the Economy," OUP Catalogue, Oxford University Press, number 9780198292241.
  7. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  8. Herbert A. Simon, 1991. "Organizations and Markets," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 25-44, Spring.
  9. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
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