Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223486
Authors: 
Fahn, Matthias
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8414
Abstract: 
This paper analyzes a dynamic relational contract for employees with reciprocal preferences. I develop a tractable model to investigate how “direct” performance-pay (promising a bonus in exchange for effort) and generous upfront wages (which activate the norm of reciprocity) interact over the course of an employee’s career. I show that firms can benefit from committing to paying non-discretionary wages in the future as this boosts their credibibility in the relational contract. The reason is that these wages have to be paid under any circumstances, whereas employees only reciprocate if the firm has kept its promises. Moreover, I demonstrate that more intense competition for workers can intensify the use of reciprocity-based incentives.
Subjects: 
reciprocity
relational contracts
commitment
norms and social preferences
JEL: 
C73
D21
D86
D90
D91
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.