We solve for the optimal contract when agents are reciprocal, demonstrating
that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal of effort and when the agent is highly reciprocal and/or productive. Similarly, reciprocal incentives are attractive when firm managers have strong incentive pay and discretion over
employee compensation. While reciprocal incentives can be optimal even when identical firms compete, a reciprocity contract is most likely when one firm has a match-specific productivity advantage with the agent. (JEL D23, D86, J33, M12, M52)
Englmaier, Florian, and Stephen Leider.
"Contractual and Organizational Structure with Reciprocal Agents."
American Economic Journal: Microeconomics,
Organizational Behavior; Transaction Costs; Property Rights
Economics of Contract: Theory
Compensation Packages; Payment Methods
Personnel Management; Executive Compensation
Personnel Economics: Compensation and Compensation Methods and Their Effects