Fairness, Incentives, and Contractual Choices

Fehr, Ernst; Schmidt, Klaus M.

doi:10.2139/ssrn.203309

“…Dewatripont, Jewitt and Tirole (1999a) and -2 -Recent literature in experimental economics (e.g. Fehr, Kirchsteiger and Riedl 1993;Berg, Dickhaut, and McCabe 1995, Fehr, Gächter and Kirchsteiger 1997, Charness 1998, Abbink, Irlenbusch, and Renner 2000, Dufwenberg and Gneezy 2000, Dufwenberg and Kirchsteiger 2000, Fehr and Schmidt 2000, Clark and Sefton 2001, Van der Heijden, Nelissen, Potters, and Verbon 2001, Irlenbusch and Sliwka 2003 has pointed out that the assumption that economic agents are guided by narrow self-interest and maximisation of monetary payoffs has to be rejected in many cases. Fairness and reciprocity play an important role in explaining human behaviour.…”

Section: Introductionmentioning

confidence: 99%

Career concerns in a simple experimental labour market

Irlenbusch

¹

,

Sliwka

²

2006

European Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Career Concerns in a Simple Experimental Labour MarketBernd Irlenbusch Dirk Sliwka The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. ABSTRACT Career Concerns in a Simple Experimental Labour Market *We experimentally investigate a simple version of Holmström's career concerns model in which firms compete for agents in two consecutive periods. Profits of firms are determined by agents' unknown ability and the effort they choose. Before making second-period wage offers firms are informed about first-period profits. In a different treatment firms additionally learn the abilities of agents. Theory suggests high first-period equilibrium effort in the hidden ability treatment but no effort elsewhere. However, we find that effort is significantly higher in the revealed ability treatment and therefore conclude that transparency does not weaken, but strengthen career concerns incentives.JEL Classification: C72, C91, J33

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“…This is also sometimes referred to as "status concerns." See also Fehr, Klein, and Schmidt (2001) and Huck, Kübler, and Weibull (2002) for models which take up similar issues.…”

mentioning

confidence: 99%

The sociology of groups and the economics of incentives: Theory and evidence on compensation systems

Encinosa

¹

,

Gaynor

²

,

Rebitzer

³

2007

Journal of Economic Behavior & Organization

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation SystemsWilliam E. Encinosa III Martin Gaynor James B. Rebitzer The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.

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“…This feature (as well as a static contracting approach) is shared with Fershtman et al (2006). Fehr et al (2007) show experimentally and theoretically that workers' concerns for equality may be a reason why many real-life contracts are left deliberately incomplete in environments with hidden effort. Rey-Biel (2008) shows that an employer can exploit envy by "threatening" workers with inequality when outcomes are unsatisfactory (a threat that does not have to carried out in equilibrium).…”

Section: Other Approaches To Envy and The Labor Marketsmentioning

confidence: 95%

The causes and economic consequences of envy

Cabrales

¹

2010

SERIEs

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In this lecture I first give an explanation for invidious preferences based on the (evolutionary) competition for resources. Then I show that these preferences have wide ranging and empirically relevant effects on labor markets, such as: workplace skill segregation, gradual promotions, wage increases that have no relation with productivity and downward wage flexibility. I suggest that labor and human resource economics can benefit from including envy into the standard set of factors considered in their theoretical and empirical models.

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Fairness, Incentives, and Contractual Choices

Cited by 135 publications

References 12 publications

Career concerns in a simple experimental labour market

Career concerns in a simple experimental labour market

The sociology of groups and the economics of incentives: Theory and evidence on compensation systems

The causes and economic consequences of envy

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