Reciprocity in Dynamic Employment Relationships

Matthias Fahn ()
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Matthias Fahn: Department of Economics, Johannes Kepler University Linz, 4040 Linz, Austria; CESifo, 81679 Munich, Germany

Management Science, 2023, vol. 69, issue 10, 5816-5829

Abstract: This paper analyzes a dynamic relational contract for employees with reciprocal preferences. A model of a long-term employment relationship is developed that implies that generous upfront wages activate the norm of reciprocity and then are more important when an employee is close to retirement. In earlier stages, direct incentives promising a bonus in exchange for effort are more effective. Hence, direct and reciprocity-based incentives reinforce each other and should be used in combination. Moreover, a more competitive labor market may increase the utilization of reciprocity-based incentives.

Keywords: reciprocity; relational contracts; norms and social preferences (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:10:p:5816-5829

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