Contractual and Organizational Structure with Reciprocal Agents

By Florian Englmaier, Stephen Leider. Social Science Research Network, 2008

161 citations recorded by the source corpus.

Empirically, compensation systems generate substantial effort despite weak monetary incentives. We consider reciprocal motivations as a source of incentives. We solve for the optimal contract in the basic principal-agent problem and show that reciprocal motivations and explicit performance-based pay are substitutes. A firm endogenously determines the mix of the two sources of incentives to best induce effort from the agent. Analyzing extended versions of the model allows us to examine how organizational structure impacts the effectiveness of reciprocity and to derive specific empirical predictions. We use the UK-WERS workplace compensation data set to confirm the predictions of our extended model.

Subfields: Accounting, Economics and Econometrics, Safety Research

View Paper: https://www.semanticscholar.org/paper/95d20afa2c09def560bf4aca5418d34a2be1cd1b