Gift-Exchange, Incentives, and Heterogeneous Workers

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 10-008/1

Classification and Topics

• Classification: Wirtschaft ; Economics of Contract: Theory ; Labor Contracts ; Personnel Economics: Compensation and Compensation Methods and Their Effects ; Personnel Economics: Labor Contracting Devices
• Subject: reciprocity ; gift-exchange ; signaling game ; incentive contracts ; screening ; Geschenk ; Signalling ; Anreizvertrag ; Prinzipal-Agent-Theorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Non, Arjan
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/86662
• Last update: 10.03.2025, 11:42 AM CET