Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2008-09-03 Number: 08-080/1 Author-Name: Robert Dur Author-Email: dur@few.eur.nl Author-Workplace-Name: Erasmus University Rotterdam, and CESifo Author-Name: Arjan Non Author-Email: janon@few.eur.nl Author-Workplace-Name: Erasmus University Rotterdam Author-Name: Hein Roelfsema Author-Email: h.j.roelfsema@econ.uu.nl Author-Workplace-Name: Utrecht University Title: Reciprocity and Incentive Pay in the Workplace Abstract: This discussion paper has resulted in a publication in the Journal of Economic Psychology, 31(4), 676-686.

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 test these predictions using German Socio-Economic Panel data. We find that workers who are more reciprocal are significantly more likely to receive promotion incentives, while there is no such relation for individual bonus pay. Classification-JEL: D86, J41, M51, M52, M54, M55 Keywords: reciprocity, social exchange, incentive contracts, double moral hazard, GSOEP File-Url: https://papers.tinbergen.nl/08080.pdf File-Format: application/pdf File-Size: 315099 bytes Handle: RePEc:tin:wpaper:20080080