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

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

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

Social Relations and Relational Incentives

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

Optimal Incentive Contracts when Workers envy their Boss

A worker's utility may increase in his own income, but envy can make his utility decline with his employer's income. Such behavior may call for high-powered incentives, so that increased effort by the worker little increases the income of his employer. This paper employs a principal-agent model to study optimal incentive contracts for envious workers under various assumptions about the object and generality of envy. Envy amplifies the effect of incentives on effort and, therefore, increases optimal incentive pay. Moreover, envy can make profit-sharing optimal, even when the worker's effort is fully contractible. We discuss several applications of our theoretical work. For example, envy can explain why lower-level workers are awarded stock options, why incentive pay is usually lower in non-profit organizations, and higher in larger firms. Envy may also make governmental production of a good more efficient than private production