Reciprocity, Repeated Play, and Budget-based Contracts
Speaker
Abstract
| Using a laboratory experiment, our study examines whether reciprocity affects budget levels and the relation between budget and effort levels across single- and repeated-interaction settings. We find that superiors select higher budgets and that employees respond with higher effort in the single-interaction setting. In contrast, we find that superiors set lower budgets and that employees generally respond to low budgets with high effort and to high budgets with low effort in the repeated-interaction setting. Our results suggest that innate preferences for reciprocity per se played a limited role in our budget setting. Rather, reciprocity appeared to emerge for more strategic reasons. Collectively, our results may help explain why organizations tend to set readily achievable budget targets. Our results also suggest that reciprocal motivations actually may lead superiors to build slack into budgets. |
| Contact information: |
| Paolo Perego |
