Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/35461
Authors: 
Bandiera, Oriana
Barankay, Iwan
Rasul, Imran
Year of Publication: 
2008
Series/Report no.: 
IZA discussion papers 3917
Abstract: 
We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages, to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort towards high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance.
Subjects: 
Favoritism
managerial incentives
natural field experiment
JEL: 
J33
M52
M54
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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