Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26460
Authors: 
Englmaier, Florian
Leider, Stephen
Year of Publication: 
2008
Series/Report no.: 
CESifo working paper 2415
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.
Subjects: 
Optimal contracts
reciprocity
organizational structure
JEL: 
D82
J33
M52
Document Type: 
Working Paper

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