The Effects of Contract Generosity and Feedback on Reciprocity, Trust and Cooperation

Abstract:     
This study experimentally examines how the generosity of an incentive contract offered by an experimental firm to a pair of employees and a feedback system that provides information on individual employee cooperativeness affect the sustainability of cooperation. Both contract generosity and the feedback system do not provide explicit economic incentives for cooperation. We find that when there is no feedback system, contract generosity increases the sustainability of cooperation and trust in fellow employees. Introducing the feedback system improves the sustainability of cooperation and trust in fellow employees. However, the feedback system reduces the positive impact of contract generosity on cooperation sustainability, possibly because it crowds out reciprocity by shifting employees’ focus from their relationship with the firm to their relationship with fellow employees. Our results suggest that firms can rely on reciprocity and feedback, rather than explicit economic incentives, to motivate sustained cooperation and improve interpersonal trust.

Number of Pages in PDF File: 35

Keywords: group incentive, contract generosity, feedback, reciprocity, trust, cooperation

JEL Classification: M46

working papers series