Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2012-05-16
Number: 12-054/1
Author-Name: Robert Dur
Author-Workplace-Name: Erasmus University Rotterdam, CESifo, and IZA
Author-Name: Jan Tichem
Author-Workplace-Name: Erasmus University Rotterdam
Title: Social Relations and Relational Incentives
Abstract: This paper studies how social relationships between managers and employees affect relational incentive contracts. To this end we develop a simple dynamic principal-agent model where both players may have feelings of altruism or spite toward each other. The contract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal. We find that good social relationships undermine the credibility of a threat of dismissal but strengthen the credibility of a bonus. Among others, these two mechanisms imply that better social relationships sometimes lead to higher bonuses, while worse social relationships may increase productivity and players' utility in equilibrium.
Classification-JEL: D23, J33, M52, M55
Keywords: Altruism, spite, social relations, incentives, relational contracts, efficiency wages, subjective performance evaluation, Nash bargaining
File-Url: https://papers.tinbergen.nl/12054.pdf
File-Format: application/pdf
File-Size: 337043 bytes
Handle: RePEc:tin:wpaper:20120054