Profit Sharing and Reciprocity: Theory and Survey Evidence

35 Pages Posted: 29 Apr 2010

See all articles by Thomas Cornelissen

Thomas Cornelissen

University College London

John S. Heywood

affiliation not provided to SSRN

Uwe Jirjahn

affiliation not provided to SSRN

Date Written: April 2010

Abstract

The 1/n problem potentially limits the effectiveness of profit sharing in motivating workers. While the economic literature suggests that reciprocity can mitigate this problem, it remains silent on the optimal degree of reciprocity. We present a representative model demonstrating that reciprocity may increase productive effort but may also increase unproductive effort such as socializing on the job. The model implies that reciprocity increases profit up to a point but decreases profit beyond that point. Using detailed survey measures of worker reciprocity, we show that the probability of receiving profit sharing takes an inverse U-shape as reciprocity increases. This supports the general implication of the model and is shown to exist for both positive and negative reciprocity and to remain when a series of ability proxies and detailed industry indicators are included.

Suggested Citation

Cornelissen, Thomas and Heywood, John S. and Jirjahn, Uwe, Profit Sharing and Reciprocity: Theory and Survey Evidence (April 2010). SOEPpaper No. 292. Available at SSRN: https://ssrn.com/abstract=1597142 or http://dx.doi.org/10.2139/ssrn.1597142

Thomas Cornelissen (Contact Author)

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

John S. Heywood

affiliation not provided to SSRN

Uwe Jirjahn

affiliation not provided to SSRN

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