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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2003:9:
Why are Small Firms Different? Managers' Views

Jonas Agell ()

Abstract: Do incentives in small organizations differ from those in large ones? This paper uses a representative survey of compensation managers to shed light on the issues. I find that (i) small establishments rely less on pecuniary incentives, and have a significantly more hostile attitude towards incentive schemes based on competition and relative rewards; (ii) large units are more vulnerable to mechanisms of efficiency wages, effects that remain even as I control for differences in monitoring ability; (iii) large units are more prone to indicate that negative reciprocity is important, and that their employees care about relative pay. I argue that these findings fit with behavioral stories of incentives and motivation, in particular those stressing group interaction effects, inequity aversion and gift exchange.

Keywords: firm-size effect; motivation; relative pay; field-survey; matched data; (follow links to similar papers)

JEL-Codes: J30; J41; (follow links to similar papers)

22 pages, August 25, 2003

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