Optimal Incentives Under Gift Exchange
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Hayat Khan
Abstract
This paper studies optimal incentives in the presence of an agent’s preference for generosity, where the principal optimally chooses the level of generosity (rent) as well as the performance-based pay. We show that some minimum level of reciprocity is required for generous contracts to become attractive. More reciprocal agents exert greater effort, but they may not necessarily receive more generous offers, as our model predicts a hump-shaped relationship between generosity and the reciprocity parameter. This means that moderately reciprocal agents tend to receive a premium relative to weakly or strongly reciprocal agents. Generosity and performance-based pay are likely to behave as complements when risk-sharing motives (determined by noise in the environment and the agent’s degree of risk-aversion) are strong, and they are likely to behave as substitutes when risk-sharing motives are relatively moderate. Moreover, base-wage gifts are always optimal, whereas piece-rate or composite gifts are only optimal in a low-noise environment.
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Artikel in diesem Heft
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Artikel in diesem Heft
- Research Articles
- Optimal Forestry Contract with Interdependent Costs
- Bi and Branching Strict Nash Networks in Two-way Flow Models: A Generalized Sufficient Condition
- Pay-What-You-Want in Competition
- Two Rationales for Insufficient Entry
- Students’ Social Origins and Targeted Grading
- Pricing, Signalling, and Sorting with Frictions
- On the Economic Value of Signals
- The Core in Bertrand Oligopoly TU-Games with Transferable Technologies
- Reasoning About ‘When’ Instead of ‘What’: Collusive Equilibria with Stochastic Timing in Repeated Oligopoly
- Timing Games with Irrational Types: Leverage-Driven Bubbles and Crash-Contingent Claims
- Costly Rewards and Punishments
- Blocking Coalitions and Fairness in Asset Markets and Asymmetric Information Economies
- Strategic Activism in an Uncertain World
- On Equilibrium Existence in a Finite-Agent, Multi-Asset Noisy Rational Expectations Economy
- Optimal Incentives Under Gift Exchange
- Public Good Indices for Games with Several Levels of Approval
- Vagueness of Language: Indeterminacy under Two-Dimensional State-Uncertainty
- Winners and Losers of Universal Health Insurance: A Macroeconomic Analysis
- Behavioral Theory of Repeated Prisoner’s Dilemma: Generous Tit-For-Tat Strategy
- Flourishing as Productive Tension: Theory and Model
- Notes
- A Note on Reference-Dependent Choice with Threshold Representation
- Regular Equilibria and Negative Welfare Implications in Delegation Games
- Unbundling Production with Decreasing Average Costs
- A Simple and Procedurally Fair Game Form for Nash Implementation of the No-Envy Solution
- Decision Making and Games with Vector Outcomes
- Capital Concentration and Wage Inequality
- Annuity Markets and Capital Accumulation
