Management Papers

Document Type

Journal Article

Date of this Version

7-2009

Publication Source

Econometrica

Volume

77

Issue

4

Start Page

1047

Last Page

1094

DOI

10.3982/ECTA6496

Abstract

We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort toward high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance.

Copyright/Permission Statement

This is the peer reviewed version of the following article: Bandiera, O., Barankay, I. and Rasul, I. (2009), Social Connections and Incentives in the Workplace: Evidence From Personnel Data. Econometrica, 77: 1047–1094., which has been published in final form at doi: 10.3982/ECTA6496. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms.

Keywords

favoritism, managerial incentives, natural field experiment

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Date Posted: 27 November 2017

This document has been peer reviewed.