Social Connections and Incentives in the Workplace: Evidence from Personnel Data

Oriana Bandiera, Iwan Barankay () and Imran Rasul

No 3917, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages, to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort towards high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance.

Keywords: natural field experiment; managerial incentives; favoritism (search for similar items in EconPapers)
JEL-codes: J33 M52 M54 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2008-12
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-exp, nep-lab and nep-soc
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Citations: View citations in EconPapers (68)

Published - published in: Econometrica, 2009, 77 (4), 1047-1094

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Related works:
Journal Article: Social Connections and Incentives in the Workplace: Evidence From Personnel Data (2009)
Working Paper: Social Connections and Incentives in the Workplace: Evidence from Personnel Data (2009)
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