Asymmetric reference-dependent reciprocity, downward wage rigidity, and the employment contract
Dickson, Alex and Fongoni, Marco (2019) Asymmetric reference-dependent reciprocity, downward wage rigidity, and the employment contract. Journal of Economic Behaviour and Organization, 163. pp. 409-429. ISSN 0167-2681 (https://doi.org/10.1016/j.jebo.2019.05.006)
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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.
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Item type: Article ID code: 67877 Dates: DateEvent31 July 2019Published24 May 2019Published Online6 May 2019AcceptedSubjects: Social Sciences > Economic Theory Department: Strathclyde Business School > Economics Depositing user: Pure Administrator Date deposited: 16 May 2019 09:28 Last modified: 05 Aug 2024 01:20 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/67877