Reciprocity and Incentive Pay in the Workplace
27 Pages Posted: 8 Mar 2010
We study optimal incentive contracts for workers who are reciprocal to management attention. When neither worker's effort nor manager's attention can be contracted, a double moral-hazard problem arises, implying that reciprocal workers should be given weak financial incentives. In a multiple-agent setting, this problem can be resolved using promotion incentives. We empirically examine these predictions using data from the German Socio-Economic Panel. We find that workers who are more reciprocal are significantly more likely toreceive promotion incentives, while there is no such relation for individual bonus pay.
Keywords: reciprocity, social exchange, incentive contracts, double moral hazard, GSOEP
JEL Classification: D86, J41, M51, M52, M54, M55
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