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Contractual and Organizational Structure with Reciprocal Agents

Author

Listed:
  • Florian Englmaier
  • Stephen G. Leider
Abstract
Empirically, compensation systems generate substantial effort despite weak monetary incentives. We consider reciprocal motivations as a source of incentives. We solve for the optimal contract in the basic principal-agent problem and show that reciprocal motivations and explicit performance-based pay are substitutes. A firm endogenously determines the mix of the two sources of incentives to best induce effort from the agent. Analyzing extended versions of the model allows us to examine how organizational structure impacts the effectiveness of reciprocity and to derive specific empirical predictions. We use the UK-WERS workplace compensation data set to confirm the predictions of our extended model.

Suggested Citation

  • Florian Englmaier & Stephen G. Leider, 2008. "Contractual and Organizational Structure with Reciprocal Agents," CESifo Working Paper Series 2415, CESifo.
    • Handle: RePEc:ces:ceswps:_2415
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    References listed on IDEAS

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    More about this item

    Keywords

    optimal contracts; reciprocity; organizational structure;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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