Efficiency wages with motivated agents

Jesper Armouti-Hansen, Lea Cassar, Anna Deréky and Florian Engl

Games and Economic Behavior, 2024, vol. 145, issue C, 66-83

Abstract: Many jobs serve a social purpose beyond profit maximization, contributing positively to society. This paper uses a modified principal-agent gift-exchange game with positive externality (prosocial treatment) to study how workers' prosocial motivation interacts with the use of efficiency wages in stimulating effort. We find that prosocial motivation and efficiency wages are independent in stimulating effort: compared to a standard gift-exchange game (GE treatment), the presence of the externality shifts the agents' effort choice function upwards without affecting its slope. Thus, if principals were profit-maximizers, wage offers should be the same in both treatments. However, principals offer higher wages in the prosocial treatment. We show that this is due to principals in the GE treatment highly underestimating agents' reciprocity and thereby offering wages below the profit-maximizing level. Results from robustness-checks further suggest that our findings are unlikely to be driven by a simple efficiency effect.

Keywords: Prosocial motivation; Gift exchange; Biased beliefs; Efficiency wages (search for similar items in EconPapers)
JEL-codes: D23 M52 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Efficiency Wages with Motivated Agents (2021)
Working Paper: Efficiency Wages with Motivated Agents (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:145:y:2024:i:c:p:66-83

DOI: 10.1016/j.geb.2024.03.001

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