Gift-Exchange, Incentives, and Heterogeneous Workers

By incorporating reciprocity in an otherwise standard principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some, but not all, workers care more for their principal when they are convinced that the principal cares for them. The principal can be egoistic or altruistic. Absent worker heterogeneity, an altruistic principal signals his altruism by offering relatively weak incentives and a relatively high expected total compensation. However, the latter is not always required to credibly signal altruism. Furthermore, since some workers do not reciprocate the principal’s altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. Such a contract is characterised by excessively strong incentives and a relatively high expected total compensation.reciprocity, gift-exchange, signaling game, incentive contracts, screening

Isolation or joining a mall? On the location choice of competing shops

I study the location choice of competing shops. A shop can either be isolated or join a mall. A fraction of consumers is uninformed about prices and incurs costs to travel between market places and to enter a shop. The equilibrium mall size is computed for several parameter values, showing that mall and isolated shops can coexist. Several effects play a role. Mall shops attract more consumers, but isolated shops set a higher maximum price. Moreover, numerical evaluations show that an increase in mall size decreases the average price level and increases the participation level of uninformed consumers.location choice; travel costs; pricing; consumer search

Reciprocity and Incentive Pay in the Workplace

We study optimal incentive contracts for workers who are reciprocal to management attention. When neither worker's effort nor manager's attention can be contracted, a double moral-hazard problem arises, implying that reciprocal workers should be given weak financial incentives. In a multiple-agent setting, this problem can be resolved using promotion incentives. We test these predictions using German Socio-Economic Panel data. We find that workers who are more reciprocal are significantly more likely to receive promotion incentives, while there is no such relation for individual bonus pay.Reciprocity, social exchange, incentive contracts, double moral hazard, GSOEP