Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics

36 Pages Posted: 31 May 2011

See all articles by Johannes Abeler

Johannes Abeler

IZA Institute of Labor Economics; University of Nottingham

Steffen Altmann

University of Copenhagen; IZA Institute of Labor Economics

Sebastian J. Goerg

Florida State University - Department of Economics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Sebastian Kube

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Bonn

Matthias Wibral

Maastricht University, School of Business and Economics; IZA Institute of Labor Economics

Abstract

In this paper, we discuss recent evidence from economic experiments that study the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments: individual pay-for-performance schemes maximize efficiency but might lead to inequitable outcomes. We present findings from laboratory experiments that show under which circumstances partially incomplete contracts can create equitable work environments while at the same time reaching surprisingly efficient outcomes.

Keywords: incentives, wage setting, equity, gift exchange, reciprocity, incomplete contracts, organizational economics, laboratory experiments

JEL Classification: J33, D63, M52, C92, J41

Suggested Citation

Abeler, Johannes and Altmann, Steffen and Goerg, Sebastian J. and Kube, Sebastian and Wibral, Matthias, Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics. IZA Discussion Paper No. 5727. Available at SSRN: https://ssrn.com/abstract=1855159

Johannes Abeler (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Nottingham

University Park
Nottingham, NG8 1BB
United Kingdom

Steffen Altmann

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Sebastian J. Goerg

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
+1 (850) 644-7083 (Phone)

HOME PAGE: http://www.s-goerg.de

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

HOME PAGE: http://www.coll.mpg.de

Sebastian Kube

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Bonn

BWL 1
Adenauerallee 24-42
Bonn, D-53012
Germany

Matthias Wibral

Maastricht University, School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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