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Is the Efficiency Wage Efficient? The Social Norm and Organizational Corruption

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  • Juin‐jen Chang
  • Ching‐chong Lai

Abstract

The effectiveness of efficiency wage incentives is often jeopardized by perverse organizational corruption. We model organizational corruption as a phenomenon of social interaction and relate the substantial psychological role characterizing the social norm to the corruption problem. We find that if the status quo bribery rate within the firm is high, social norms can no longer serve as a sufficient sanction against a corrupt supervisor; pandemic organizational corruption tends to generate a critical mass effect—the snowball effect—which intensifies the corruption effect. This intensified effect, due to the snowballing character of social norms, may more than offset the usual incentive effect of wages, resulting in more widespread shirking in the firm. JEL classification: D82; J41

Suggested Citation

  • Juin‐jen Chang & Ching‐chong Lai, 2002. "Is the Efficiency Wage Efficient? The Social Norm and Organizational Corruption," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 27-47, March.
    • Handle: RePEc:bla:scandj:v:104:y:2002:i:1:p:27-47
    DOI: 10.1111/1467-9442.00270
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    Cited by:

    1. Valeria Maggian & Natalia Montinari & Antonio Nicol�, 2018. "Backscratching in Hierarchical Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(2), pages 133-161.
    2. Maurizio Caserta & Livio Ferrante & Francesco Reito, 2022. "Bribes and Bureaucracy Size: The Strategy of Watering Down Corruption," Economica, London School of Economics and Political Science, vol. 89(353), pages 191-213, January.
    3. R. Mark Isaac & Douglas A. Norton, 2013. "Just the Facts Ma’am: A Case Study of the Reversal of Corruption in the Los Angeles Police Department," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-35439-6.
    4. Dughera, Stefano & Giraudo, Marco, 2020. "Privacy Rights in Online Interactions and Litigation Dynamics: a Social Custom View," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202003, University of Turin.
    5. Stefano Dughera, 2022. "The evolution of workplace control leadership, obedience and organizational performance," Journal of Evolutionary Economics, Springer, vol. 32(2), pages 399-421, April.
    6. Rotondi, Valentina & Stanca, Luca, 2015. "The effect of particularism on corruption: Theory and empirical evidence," Journal of Economic Psychology, Elsevier, vol. 51(C), pages 219-235.
    7. Dughera, Stefano & Giraudo, Marco, 2021. "Privacy rights in online interactions and litigation dynamics: A social custom view," European Journal of Political Economy, Elsevier, vol. 67(C).
    8. Nekovee, Maziar & Pinto, Jonathan, 2019. "Modeling the impact of organization structure and whistle-blowers on intra-organizational corruption contagion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 522(C), pages 339-349.
    9. Davis, Jon S. & Pesch, Heather L., 2013. "Fraud dynamics and controls in organizations," Accounting, Organizations and Society, Elsevier, vol. 38(6), pages 469-483.
    10. Stefano Dughera & Alain Marciano, 2022. "Supervise me if you can. Relational feelings, incentive pays and supervisory violations," Journal of Economics, Springer, vol. 136(1), pages 47-72, June.
    11. Van-Ha Le & Jakob de Haan & Erik Dietzenbacher & Jakob de Haan, 2013. "Do Higher Government Wages Reduce Corruption? Evidence Based on a Novel Dataset," CESifo Working Paper Series 4254, CESifo.
    12. Timofeyev, Yuriy, 2015. "Analysis of predictors of organizational losses due to occupational corruption," International Business Review, Elsevier, vol. 24(4), pages 630-641.
    13. Jamie-Lee Campbell & Anja Göritz, 2014. "Culture Corrupts! A Qualitative Study of Organizational Culture in Corrupt Organizations," Journal of Business Ethics, Springer, vol. 120(3), pages 291-311, March.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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