Journal of Economic Perspectives: Vol. 21 No. 4 (Fall 2007)
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Ellingsen, Tore, and Magnus Johannesson. 2007. "Paying Respect." Journal of Economic Perspectives, 21(4): 135-150.
Why do people work? Economic theory generally, and the principal-agent model specifically, emphasize the role of material incentives. But many academics, for example, work diligently year after year for a nearly fixed real salary, continuing to work hard as they approach retirement, although financial incentives are usually absent. We will argue that while economists have been right to focus on incentives, they have been wrong to focus so exclusively on material incentives. While workers appreciate monetary rewards, they also get utility from what (they believe that) others think about them. We lay out a body of evidence that, taken as a whole, makes a strong case that respect matters in the workplace, above and beyond material rewards. We discuss evidence that workers respond to attention, symbolic rewards, and trust -- and even that material incentives in some cases lead to less effort. Finally, we argue that many of these observations can be captured in a standard principal-agent model, once the principals and the agents are assumed to care about respect or esteem as well as money.
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