Contractual and Organizational Structure with Reciprocal Agents

Englmaier, Florian and Leider, Stephen G. (2008): Contractual and Organizational Structure with Reciprocal Agents. CESifo Working Paper, No. 2415.

Abstract

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.

• Item Type: Paper
• Keywords: optimal contracts; reciprocity; organizational structure
• Faculties: Economics; Economics > Chairs > Seminar for Organizational Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D82, J33, M52
• Place of Publication: München
• Language: English