Provenzano, Carmelo
(2013)
Institutions and reciprocity in the employment relationship.
PhD thesis, London School of Economics and Political Science.
Abstract
Homo oeconomicus has dominated mainstream Economics during the last century. One of the main assumptions of this model is that humans maximise their own utility functions. In other words, homo oeconomicus, before taking action, considers the consequences on their own future interests, which are generally assumed to be monetary. This thesis provides experimental results showing that human behaviour often differs from that of homo oeconomicus, particularly in environments where trust and reciprocity are salient concerns. To be precise, this dissertation analyses the employment relationship, focusing particularly on the importance of trust and the role of direct reciprocity in the relationship between managers and workers. Reciprocity is an important contract enforcement device in the presence of incomplete labour contracts. By reciprocity between employer and employee, what is meant is a predisposition, within the institutional context of defined employment tasks, to cooperate with the other party even at personal cost, and a willingness to punish the other party if they violate cooperative norms, even when punishment is costly to the individual. The original contribution of this thesis goes beyond this result and shows the impact of informal employment rules on reciprocity. In particular, it uses experimental methods to identify two distinct governance patterns for employment relationships: the rigid governance structure and the flexible governance structure. The former is characterised by task-centred rules and defines the boundaries of jobs in a much more specific way than the latter, which is characterised by function-centred rules, and gives rise to a more flexible and discretionary model of employment relationships. The most important original experimental result of this thesis is that rigid governance characterised by taskcentred rules and low reciprocity is better suited to one-shot transactions, whereas flexible governance characterised by function-centred rules and a high level of reciprocity is better suited to repeated transactions.
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