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Gift-Exchange, Incentives, and Heterogeneous Workers

Arjan Non

No 3547, CESifo Working Paper Series from CESifo

Abstract: By incorporating reciprocity in an otherwise standard principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some, but not all, workers care more for their principal when they are convinced that the principal cares for them. The principal can be egoistic or altruistic. Absent worker heterogeneity, an altruistic principal signals his altruism by offering relatively weak incentives and a relatively high expected total compensation. However, the latter is not always required to credibly signal altruism. Furthermore, since some workers do not reciprocate the principal’s altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. Such a contract is characterised by excessively strong incentives and a relatively high expected total compensation.

Keywords: reciprocity; gift-exchange; signaling game; incentive contracts; screening (search for similar items in EconPapers)
JEL-codes: D86 J41 M52 M55 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Gift-exchange, incentives, and heterogeneous workers (2012) Downloads
Working Paper: Gift-Exchange, Incentives, and Heterogeneous Workers (2011) Downloads
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