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Backscratching in Hierarchical Organizations

Valeria Maggian, Natalia Montinari () and Antonio Nicolo' ()

No 299, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: In this paper we investigate the role of reciprocity in sustaining the emergence of implicit collusive agreements in hierarchical organizations. We conduct a laboratory experiment in which an agent hires, on behalf of the principal, one worker out of two candidates. The two candidates differ in their ability and, once employed, the worker chooses a level of non-contractible effort to exert in two tasks: one benefits the organization (that is both the principal and the agent) while the other one is less profitable, only benefits the agent and provides him with higher earnings. We provide evidence that: i) low ability workers are more likely to exert effort in the task that is exclusively beneficial to the agent; ii) as a consequence, agents distort the hiring process in favor of the low ability workers and iii) sharing a small part of the organization's profits with the workers alleviates their effort distortion.

Keywords: Con ict of Interest; Effort Distortion; Profit Sharing; and Reciprocity (search for similar items in EconPapers)
JEL-codes: C91 J50 L14 M52 (search for similar items in EconPapers)
Pages: 33
Date: 2015-04, Revised 2015-04
New Economics Papers: this item is included in nep-hme and nep-soc
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Journal Article: Backscratching in Hierarchical Organizations (2018) Downloads
Working Paper: Backscratching in Hierarchical Organizations (2015) Downloads
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