Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2010-01-06
Revision-Date: 2011-05-31
Number: 10-008/1
Author-Name: Arjan Non
Author-Workplace-Name: Erasmus University Rotterdam
Title: Gift-Exchange, Incentives, and Heterogeneous Workers
Abstract: Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal their altruism by offering a generous contract, consisting of a base salary and an output-contingent bonus. I find that principals signal their altruism by offering relatively weak incentives and a relatively high expected total compensation, but the latter does not necessarily hold. Furthermore, since some agents 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. I show that such a contract is characterised by excessively strong incentives and relatively high expected total compensation.
Classification-JEL: D86, J41, M52, M55
Keywords: reciprocity, gift-exchange, signaling game, incentive contracts, screening
File-Url: https://papers.tinbergen.nl/10008.pdf
File-Format: application/pdf
File-Size: 362523 bytes
Handle: RePEc:tin:wpaper:20100008