The Impact of Envy on Relational Employment Contracts

Kragl, Jenny; Schmid, Julia

doi:10.2139/ssrn.955803

Cited by 16 publications

(29 citation statements)

References 41 publications

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“…2 The impact of other-regarding preferences on incentive provision has also be analyzed in settings assuming comparisons between a principal and a single agent (Itoh 2004, Dur and Glazer 2008, Englmaier and Wambach 2010), team production (Rey Biel 2008, Bartling and von Siemens 2010b, tournaments (Grund and Sliwka 2005), and relational contracting (Kragl and Schmid 2009). …”

Section: The Modelmentioning

confidence: 99%

Relative Performance or Team Evaluation? Optimal Contracts for Other-Regarding Agents

Bartling

2010

SSRN Journal

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This paper derives optimal incentive contracts for agents with other-regarding preferences. It offers a behavioral explanation for the empirically observed lack of relative performance evaluation. We analyze a principal-multi agent model and assume that agents are inequity averse or status seeking. We show that team contracts can be optimal even if the agents' performance measures are positively correlated such that relative performance evaluation would be optimal with purely self-interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other-regarding preferences. Furthermore, optimal incentive contracts for other-regarding agents can be low-powered as compared to contracts for purely self-interested agents. and assume that agents are inequity averse or status seeking. We show that team contracts can be optimal even if the agents' performance measures are positively correlated such that relative performance evaluation would be optimal with purely self-interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other-regarding preferences. Furthermore, optimal incentive contracts for other-regarding agents can be low-powered as compared to contracts for purely self-interested agents.JEL Classification: D82, D86

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Section: The Modelmentioning

confidence: 99%

Relative Performance or Team Evaluation? Optimal Contracts for Other-Regarding Agents

Bartling

2010

SSRN Journal

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“…only envy is relevant in our setting. 6 Finally, by focusing on an adverse selection problem, this paper also complements the literature that studies optimal incentive contracts when employees are motivated by fairness considerations in a moral hazard setting (see among others Bartling and von Siemens, 2010, Englmaier and Wambach, 2010, Kragl and Schmid, 2009, and Neilson and Stowe, 2010.…”

Section: Related Literaturementioning

confidence: 91%

Envy in Mission-Oriented Organizations

Barigozzi

Manna

2017

SSRN Journal

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According to the labor donation theory, workers adhering to their firms' mission are willing to donate a portion of their paid labor. In this paper, we study how workers' fairness concerns limit the firm's ability to extract labor donation from its employees. We find that, in sectors where the firm's mission is important, optimal contracts are such that high-ability employees perceive their wage as less fair than low-ability employees and they must be rewarded with an "envy rent". The opposite is true in sectors where the firm's mission does not play a relevant role. We empirically test the predictions of the model using the German Socio-Economic Panel finding support for our theoretical results.JEL Codes: D03, D82, M54.

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“…The fixed wage w I negatively enters the principal's objective function such that condition (PC I ) becomes binding in the optimal contract, leading to zero rent for the agents. Using (IC I ) and (PC I ) to substitute w I and b in the principal's objective function, her problem simplifies to: Kragl and Schmid (2009). 9.…”

Section: The Contracts Under Verifiable Performancementioning

confidence: 99%

Group versus Individual Performance Pay in Relational Employment Contracts when Workers are Envious

Kragl

2015

Economics Manag Strategy

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I compare group to individual performance pay when workers are envious and performance is nonverifiable. Avoiding payoff inequity, the group reward scheme is optimal as long as the firm faces no credibility problem. The individual reward scheme may, however, become superior albeit introducing the prospect of unequal pay. This is due to two reasons: Group incentives are relatively low‐powered compared to individual incentives, requiring higher incentive pay and impeding credibility of the firm. Moreover, with individual rewards, the firm benefits from the incentive‐strengthening effect of envy, allowing for yet smaller overall incentive pay and further softening the credibility constraint. I also show that contracts combining both individual and group rewards are often optimal, depending on the firm's credibility problem. These contracts include joint and relative performance pay schemes.

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The Impact of Envy on Relational Employment Contracts

Cited by 16 publications

References 41 publications

Relative Performance or Team Evaluation? Optimal Contracts for Other-Regarding Agents

Relative Performance or Team Evaluation? Optimal Contracts for Other-Regarding Agents

Envy in Mission-Oriented Organizations

Group versus Individual Performance Pay in Relational Employment Contracts when Workers are Envious

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