Asymmetric reference-dependent reciprocity, downward wage rigidity, and the employment contract
Dickson, Alex and Fongoni, Marco (2018) Asymmetric reference-dependent reciprocity, downward wage rigidity, and the employment contract. Preprint / Working Paper. University of Strathclyde, Glasgow.
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Abstract
We develop a model of asymmetric reciprocity and optimal wage setting based on contractual incompleteness, fairness, and reference dependence and loss aversion in the evaluation of wages by workers. The model establishes a positive wage-effort relationship capturing a worker’s ‘asymmetric reference-dependent reciprocity’, in which loss aversion implies negative reciprocity is stronger than positive reciprocity. Our theory provides an explanation for the observed asymmetry and dynamics of workers’ reciprocity and establishes a micro-foundation for downward wage rigidity, the implications of which shed new light on a forward-looking firm’s optimal wage setting and hiring decisions.
ORCID iDs
Dickson, Alex ORCID: https://orcid.org/0000-0001-9386-9036 and Fongoni, Marco ORCID: https://orcid.org/0000-0001-7096-2107;-
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Item type: Monograph(Preprint / Working Paper) ID code: 66621 Dates: DateEvent13 November 2018PublishedSubjects: Social Sciences > Economic Theory Department: Strathclyde Business School > Economics Depositing user: Pure Administrator Date deposited: 17 Jan 2019 15:10 Last modified: 11 Nov 2024 16:04 URI: https://strathprints.strath.ac.uk/id/eprint/66621