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Efficiency wages with motivated agents

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  • Armouti-Hansen, Jesper
  • Cassar, Lea
  • Deréky, Anna
  • Engl, Florian

Abstract

Many jobs serve a social purpose beyond profit maximization, contributing positively to society. This paper uses a modified principal-agent gift-exchange game with positive externality (prosocial treatment) to study how workers' prosocial motivation interacts with the use of efficiency wages in stimulating effort. We find that prosocial motivation and efficiency wages are independent in stimulating effort: compared to a standard gift-exchange game (GE treatment), the presence of the externality shifts the agents' effort choice function upwards without affecting its slope. Thus, if principals were profit-maximizers, wage offers should be the same in both treatments. However, principals offer higher wages in the prosocial treatment. We show that this is due to principals in the GE treatment highly underestimating agents' reciprocity and thereby offering wages below the profit-maximizing level. Results from robustness-checks further suggest that our findings are unlikely to be driven by a simple efficiency effect.

Suggested Citation

  • Armouti-Hansen, Jesper & Cassar, Lea & Deréky, Anna & Engl, Florian, 2024. "Efficiency wages with motivated agents," Games and Economic Behavior, Elsevier, vol. 145(C), pages 66-83.
    • Handle: RePEc:eee:gamebe:v:145:y:2024:i:c:p:66-83
    DOI: 10.1016/j.geb.2024.03.001
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    More about this item

    Keywords

    Prosocial motivation; Gift exchange; Biased beliefs; Efficiency wages;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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