Backscratching in Hierarchical Organizations

We experimentally investigate the role of reciprocity in sustaining the emergence of implicit collusive agreements in hierarchical organizations. We show that when an agent hires, on behalf of the principal, one worker out of two candidates: (i) low ability workers, being less entitled to be selected, are more likely to exert effort in a task that is exclusively beneficial to the agent; (ii) as a consequence, agents distort the hiring process in favor of low ability workers; and (iii) sharing a small part of the organization's profits with the workers alleviates their effort distortion (JEL C91, J50, L14, M52)..