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Contractual and Organizational Structure with Reciprocal Agents

Florian Englmaier () and Stephen Leider ()

No 2415, CESifo Working Paper Series from CESifo Group Munich

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.

Keywords: optimal contracts; reciprocity; organizational structure (search for similar items in EconPapers)
JEL-codes: D82 J33 M52 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (21) Track citations by RSS feed

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Related works:
Journal Article: Contractual and Organizational Structure with Reciprocal Agents (2012) Downloads
Working Paper: Contractual and organizational structure with reciprocal agents (2012)
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