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Title:Social relations and relational incentives PDF Logo
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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