Respect as an Incentive

44 Pages Posted: 4 Oct 2010

See all articles by Tor Eriksson

Tor Eriksson

Aarhus University - Department of Economics

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS; IZA Institute of Labor Economics; Global Labor Organization (GLO)

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Abstract

Assuming that people care not only about what others do but also on what others think, we study respect as a non-monetary source of motivation in a context where the length of the employment relationship is endogeneous. In our three-stage gift-exchange experiment, the employer can express respect by giving the employee costly symbolic rewards after observing his level of effort. This experiment sheds light on the extent to which symbolic rewards are used, how they affect employees' further effort, the duration of relationships, and the profits of employers. Furthermore, we study whether employers' decisions to give symbolic rewards are driven by strategic considerations, by manipulating the bargaining power of employers and employees. We find that employers make use of symbolic rewards and chiefly to express their satisfaction with the employee. Indeed, symbolic rewards are more frequently used when there is excess supply of labor in the market while they are used in almost the same proportion when the market is balanced and when there is excess demand of labor. They are associated with higher profits and increased probability of continuing employment relationships. Overall, however, the opportunity of expressing respect does not improve efficiency compared with an environment in which it does not exist, possibly due to a crowding-out of extrinsic incentives by the availability of non-monetary incentives.

Keywords: respect, symbolic rewards, incentives, labor market, experiment

JEL Classification: C91, J32, J64, M52

Suggested Citation

Eriksson, Tor and Villeval, Marie Claire, Respect as an Incentive. IZA Discussion Paper No. 5200, Available at SSRN: https://ssrn.com/abstract=1686491

Tor Eriksson (Contact Author)

Aarhus University - Department of Economics ( email )

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Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS ( email )

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IZA Institute of Labor Economics

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