Gift-exchange, incentives, and heterogeneous workers

J.A. Non

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7 Citations (Scopus)

Abstract

By incorporating reciprocity in an otherwise standard principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some, but not all, workers care more for their principal when they are convinced that the principal cares for them. The principal can be egoistic or altruistic. Absent worker heterogeneity, an altruistic principal signals his altruism by offering relatively weak incentives and a relatively high expected total compensation. However, the latter is not always required to credibly signal altruism. Furthermore, since some workers 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. Such a contract is characterised by excessively strong incentives and a relatively high expected total compensation. 

Original languageEnglish
Pages (from-to)319-336
Number of pages18
JournalGames and Economic Behavior
Volume75
Issue number1
DOIs
Publication statusPublished - May 2012

Keywords

  • Reciprocity
  • Gift-exchange
  • Signalling game
  • Incentive contracts
  • Screening
  • PUBLIC-GOODS
  • HIDDEN COSTS
  • RECIPROCITY
  • FAIRNESS
  • COOPERATION
  • ECONOMICS
  • GAMES

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