Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/33774
Authors: 
Abeler, Johannes
Altmann, Steffen
Kube, Sebastian
Wibral, Matthias
Year of Publication: 
2006
Series/Report no.: 
IZA Discussion Papers 2500
Abstract: 
A growing literature stresses the importance of reciprocity, especially for employment relations. In this paper, we study the interaction of different payment modes with reciprocity. In particular, we analyze how equal wages affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts and efficiency. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference is rather driven by the fact that reciprocity is violated far more frequently in the equal wage treatment. Agents suffering from a violation of reciprocity subsequently withdraw effort. Our results suggest that individual reward and punishment opportunities are crucial for making reciprocity a powerful contract enforcement device.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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