Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322702 
Year of Publication: 
2006
Series/Report no.: 
Discussion Papers Series No. 06-11
Publisher: 
Utrecht University, Utrecht School of Economics, Tjalling C. Koopmans Research Institute, Utrecht
Abstract: 
We study the relation between formal incentives and social exchange in organizations where employees work for several managers and reciprocate to a manager's attention with higher effort. To this end, we develop a common agency model with two-sided moral hazard. We show that when effort is contractible and attention is not, the first-best can be achieved through bonus pay for both managers and employees. When neither effort nor attention are contractible, an `attention race' arises, as each manager tries to sway the employee's effort his way. While this may result in too much social exchange, the attention race may also be a blessing because it alleviates managers' moral-hazard problem inattention provision. Lastly, we derive the implications of these contract imperfections for the optimal number of managers that share one employee.
Subjects: 
social exchange
reciprocity
incentive contracts
common agency
organizational design
Document Type: 
Working Paper

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