Social Exchange and Common Agency in Organizations

Robert Dur () and Hein Roelfsema ()

No 06-11, Working Papers from Utrecht School of Economics

Abstract: We study the relation between formal incentives and social exchange in organizations where employees work for several managers and reciprocate to a manager's attention with higher effort. To this end, we develop a common agency model with two-sided moral hazard. We show that when effort is contractible and attention is not, the first-best can be achieved through bonus pay for both managers and employees. When neither effort nor attention are contractible, an `attention race' arises, as each manager tries to sway the employee's effort his way. While this may result in too much social exchange, the attention race may also be a blessing because it alleviates managers' moral-hazard problem in attention provision. Lastly, we derive the implications of these contract imperfections for the optimal number of managers that share one employee.

Keywords: social exchange; reciprocity; incentive contracts; common agency; organizational design (search for similar items in EconPapers)
JEL-codes: D86 J41 M50 M54 M55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-soc
Date: 2006-11
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Related works:
Working Paper: Social Exchange and Common Agency in Organizations (2007)
Working Paper: Social Exchange and Common Agency in Organizations (2008)
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