Gift-Exchange, Incentives, and Heterogeneous Workers

Arjan Non

No 10-008/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal their altruism by offering a generous contract, consisting of a base salary and an output-contingent bonus. I find that principals signal their altruism by offering relatively weak incentives and a relatively high expected total compensation, but the latter does not necessarily hold. Furthermore, since some agents do not reciprocate the principal's altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. I show that such a contract is characterised by excessively strong incentives and relatively high expected total compensation.

Keywords: reciprocity; gift-exchange; signaling game; incentive contracts; screening (search for similar items in EconPapers)
JEL-codes: D86 J41 M52 M55 (search for similar items in EconPapers)
Date: 2010-01-06, Revised 2011-05-31
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Related works:
Journal Article: Gift-exchange, incentives, and heterogeneous workers (2012)
Working Paper: Gift-Exchange, Incentives, and Heterogeneous Workers (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100008

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