Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86450
Authors: 
Dur, Robert
Roelfsema, Hein
Year of Publication: 
2006
Series/Report no.: 
Tinbergen Institute Discussion Paper 06-111/1
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 in attention provision. Lastly, we derive the implications of these contract imperfections for optimal organizational design.
Subjects: 
social exchange
reciprocity
incentive contracts
common agency
organizational design
JEL: 
D86
J41
M50
M54
M55
Document Type: 
Working Paper

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