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

35 Pages Posted: 10 Feb 2010  

Khim Kelly

University of Central Florida

Patricia M. S. Tan

Nanyang Technological University (NTU) - Division of Accounting

Date Written: December 1, 2009

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.

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

JEL Classification: M46

Suggested Citation

Kelly, Khim and Tan, Patricia M. S., The Effects of Contract Generosity and Feedback on Reciprocity, Trust and Cooperation (December 1, 2009). Available at SSRN: https://ssrn.com/abstract=1550444 or http://dx.doi.org/10.2139/ssrn.1550444

Khim Kelly (Contact Author)

University of Central Florida ( email )

12744 Pegaus Dr
Orlando, FL 32816
United States

Patricia M. S. Tan

Nanyang Technological University (NTU) - Division of Accounting ( email )

Nanyang Business School
Singapore, 639798
Singapore

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