Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87362
Authors: 
Dur, Robert
Tichem, Jan
Year of Publication: 
2012
Series/Report no.: 
Tinbergen Institute Discussion Paper 12-054/1
Abstract: 
This paper studies how social relationships between managers and employees affect relational incentive contracts. To this end we develop a simple dynamic principal-agent model where both players may have feelings of altruism or spite toward each other. The contract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal. We find that good social relationships undermine the credibility of a threat of dismissal but strengthen the credibility of a bonus. Among others, these two mechanisms imply that better social relationships sometimes lead to higher bonuses, while worse social relationships may increase productivity and players' utility in equilibrium.
Subjects: 
Altruism
spite
social relations
incentives
relational contracts
efficiency wages
subjective performance evaluation
Nash bargaining
JEL: 
D23
J33
M52
M55
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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