Social Exchange and Common Agency in Organizations
2006-12-15
Research Paper
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We study the relation between formal incentives and social exchange in organizations where employees work for several managers and reciprocate to a manager's attention with higher effort. To this end we develop a common agency model with two-sided moral hazard. We show that when effort is contractible and attention is not, the first-best can be achieved through bonus pay for both managers and employees. When neither effort nor attention are contractible, an 'attention race' arises, as each manager tries to sway the employee's effort his way. While this may result in too much social exchange, the attention race may also be a blessing because it alleviates managers' moral-hazard problem in attention provision. Lastly, we derive the implications of these contract imperfections for optimal organizational design.
- D86 : Economics of Contract Law
- J41 : Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
- M50 : Personnel Economics: General
- M54 : Labor Management (team formation, worker empowerment, job design, tasks and authority, job satisfaction)
- M55 : Labor Contracting Devices: Outsourcing; Franchising; Other
- agent
- attention
- effort
- principal
- contract
- number
- first-best
- incentive
- level
- share
- worker
- organization
- exchange
- manager
- reciprocity
- dei / dai
- attention race
- proposition
- journal
- condition
