Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/49496
Authors: 
Non, Arjan
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Labour Markets 3547
Abstract: 
By incorporating reciprocity in an otherwise standard principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some, but not all, workers care more for their principal when they are convinced that the principal cares for them. The principal can be egoistic or altruistic. Absent worker heterogeneity, an altruistic principal signals his altruism by offering relatively weak incentives and a relatively high expected total compensation. However, the latter is not always required to credibly signal altruism. Furthermore, since some workers do not reciprocate the principal's altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. Such a contract is characterised by excessively strong incentives and a relatively high expected total compensation.
Subjects: 
reciprocity
gift-exchange
signaling game
incentive contracts
screening
JEL: 
D86
J41
M52
M55
Document Type: 
Working Paper

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