Gift Exchange in the Workplace

We develop a model of manager-employee relationships where employees care more for their manager when they are more convinced that their manager cares for them. Managers can signal their altruistic feelings towards their employees in two ways: by offering a generous wage and by giving attention. Contrary to the traditional gift-exchange hypothesis, we show that altruistic managers may offer lower wages and nevertheless build up better social-exchange relationships with their employees than egoistic managers do. In such equilibria, a low wage signals to employees that the manager has something else to offer -- namely, a lot of attention -- which will induce the employee to stay at the firm and work hard. Our predictions are well in line with some recent empirical findings about gift exchange in the field

Motiveren, belonen en presteren in de publieke sector

Oratie uitgesproken op 8 oktober 2009 bij de aanvaarding van het ambt van bijzonder hoogleraar Economics of Incentives and Performance aan de Erasmus Universiteit Rotterdam vanwege de Vereniging Trustfonds Erasmus Universiteit Rotterdam. Het personeelsbeleid binnen de overheid, het onderwijs en de zorg is hard aan vernieuwing toe. Het op grote schaal gedogen van ondermaatse prestaties, karige beloningen voor uitmuntende prestaties, en een weinig inspirerend management zorgen ervoor dat de rek er bij het bestaand personeel grotendeels uit is en nieuw energiek talent voor het bedrijfsleven kiest. Door het behoedzame en op gelijkheid gerichte personeelbeleid laten veel getalenteerde en energieke werknemers de publieke sector links liggen en kiezen voor een baan in het bedrijfsleven. Gelukkig zijn er ook veel mensen met hart voor de publieke zaak, zogenaamde intrinsiek gemotiveerde mensen, die ondanks dit personeelsbeleid voor de publieke sector kiezen. De publieke sector in Nederland doet echter een dusdanig groot beroep op de intrinsieke motivatie van haar werknemers, dat deze bron nagenoeg uitgeput is, met name onder werknemers die al wat langer in de publieke sector werken. Het is daarom tijd voor beleidswijzigingen, zoals het jaarlijks houden van beoordelingsgesprekken (al is het maar om mensen te complimenteren), meer differentiatie in het toekennen van periodieken, het beter letten op managementvaardigheden bij het bevorderen van mensen tot leidinggevende, en meer gebruik maken symbolische beloningen (bijvoorbeeld door aansprekende functienamen). De maatregelen kunnen het best gefaseerd uitgerold worden, zodat een gedegen evaluatie van effecten mogelijk is

The Desire for Impact

This paper explores the meaning and implications of the desire by workers for impact. We find that this impact motive can make firms in a competitive labor market act as monopsonists, lead workers with the same characteristics but at different firms to earn different wages, may alleviate the hold-up problem in firm-specific investment, can make it profitable for an employer to give workers autonomy in effort or task choice, and can propagate shocks to unemployment

Status-Seeking in Violent Subcultures and the Double Dividend of Zero-Tolerance

This paper develops a model in which individuals gain social status among their peers for being 'tough' by committing violent acts. We show that a high penalty for moderately violent acts (zero-tolerance) may yield a double dividend in that it reduces both moderate and extreme violence. The reason is that a high penalty keeps relatively 'gutless' individuals from committing moderately violent acts, which raises the signaling value of that action, and thus makes it more attractive for otherwise extremely violent individuals. Conversely, a high penalty for extremely violent acts may backfire, as it induces relatively 'tough' individuals to commit moderately violent acts and so makes moderate violence more attractive for otherwise nonviolent individuals

Incentives and Workers' Motivation in the Public Sector

Civil servants have a bad reputation of being lazy. However, citizens' personal experiences with civil servants appear to be significantly better. We develop a model of an economy in which workers differ in laziness and in public service motivation, and characterise optimal incentive contracts for public sector workers under different informational assumptions. When civil servants' effort is unverifiable, lazy workers find working in the public sector highly attractive and may crowd out workers with a public service motivation. When effort is verifiable, the government optimally attracts motivated workers as well as the economy's laziest workers by offering separating contracts, which are both distorted. Even though contract distortions reduce aggregate welfare, a majority of society may be better off as public goods come at a lower cost

Working for a Good Cause

A rich literature in public administration has shown that public sector employees have stronger altruistic motivations than private sector employees. Recent economic theories stress the importance of mission preferences, and predict that altruistic people sort into the public sector when they subscribe to its mission. This paper uses data from a representative survey among more than 30.000 employees from 50 countries to test this prediction. Our results show that only those individuals who are willing to contribute to the welfare of others and, in addition, feel that by working in the public sector they contribute to a good cause are significantly more likely to work in the public sector. Our results are most pronounced for highly educated employees

Paid to quit

__Abstract__ Inspired by a recent observation about an online retail company, this paper explains why a firm may find it optimal to offer an exit bonus to recent hires so as to induce self-selection. We study a double adverse selection problem, in which the principal can neither observe agents’ commitment to the job nor their intrinsic motivation. A steep wage-tenure profile deters uncommitted agents from applying. An exit bonus can stimulate that –among the committed agents– those who discovered that they are not intrinsically motivated for the job discontinue employment with the principal. Our key findings are that offering an exit bonus increases profits when the first adverse selection problem is sufficiently severe compared to the second and that the exit bonus needs to come as a surprise for the agents in order to function well

Social Interaction, Co-Worker Altruism, and Incentives

Social interaction with colleagues is an important job attribute for many workers. To attract and retain workers, managers therefore need to think about how to create and preserve high-quality co-worker relationships. This paper develops a principal-multi-agent model where agents do not only engage in productive activities, but also in social interaction with their colleagues, which in turn creates co-worker altruism. We study how financial incentives for productive activities can improve or damage the work climate. We show that both team incentives and relative incentives can help to create a good work climate. We discuss some empirical evidence supporting these predictions

Are Education Subsidies an Efficient Redistributive Device?

We argue that promoting education may be a means to re- duce income inequality. When workers of different skilllevels are imperfect substitutes in production, an increase in the level of human capital in the economy reduces the return to education and, hence, pre-tax income inequality. The compression of pre- tax wages implies that a given inequality of after-tax incomes can be reached with a less progressive income tax. Optimal redistri- bution policy faces a trade-off between the distortionary effect of progressive income taxation and the distortions arising from education subsidies. The optimal level of education subsidies cru- cially depends on the extent to which education compresses the wage distribution, the distortionary effect of progressive income taxation, and the political desire to redistribute income. We dis- cuss empirical evidence showing that the economy's average years of schooling has a strong effect on pre-tax income inequality. We compute for a number of OECD countries the level of education subsidies that could be justified on redistributive grounds. Our argument for education subsidies goes a long way towards ex- plaining the actual pattern and level of education subsidies in OECD countries

Producing and Manipulating Information: Private Information Providers versus Public Information Providers

To reduce the chances of policy failures, policy makers need information about the effects of policies. Sometimes, policy makers can rely on agents who already possess the information. Often, the information does not exist yet. This raises two questions. First, how much resources should be devoted to the production of information? Second, should information be produced by a profit- maximizing firm (a private consultant) or by someone who has an interest in policy outcomes (a political adviser)? This paper shows that policy makers may prefer hiring a political adviser for two reasons. First, in contrast to a private consultant, a political adviser need not be fully compensated for exerting effort. Second, a political adviser with moderate preferences produces information of a higher expected quality than a private consultant is induced to do by the optimal monetary incentive scheme. The cost of hiring a political adviser is that she may distort policy decisions by manipulating information. As long as a political adviser is not too biassed, the policy maker prefers consulting a political adviser to consulting a private consultant, even if a political adviser and a private consultant are equally costly. Competition among political advisers is shown to reduce the willingness of political advisers to produce information