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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/58345
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| Title: | | Social relations and relational incentives  |
| Authors: | | Dur, Robert Tichem, Jan |
| Issue Date: | | 2012 |
| Series/Report no.: | | CESifo working paper: Behavioural Economics 3826 |
| Abstract: | | This paper studies how social relationships between managers and employees affect relational incentive contracts. To this end we develop a simple dynamic principal-agent model where both players may have feelings of altruism or spite toward each other. The contract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal. We find that good social relationships undermine the credibility of a threat of dismissal but strengthen the credibility of a bonus. Among others, these two mechanisms imply that better social relationships sometimes lead to higher bonuses, while worse social relationships may increase productivity and players' utility in equilibrium. |
| Subjects: | | altruism spite social relations incentives relational contracts efficiency wages subjective performance evaluation Nash bargaining |
| JEL: | | D23 J33 M52 M55 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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