Reciprocity in Teams: a Behavioral Explanation for Unpaid Overtime

Relying on the relevance of other-regarding preferences in workplaces, the paper provides a behavioral explanation for the puzzle of unpaid overtime. It characterizes the optimal compensation schemes offered by the employer which induce overtime by exploiting workers’ horizontal reciprocity under both symmetric and asymmetric information about workers' action. Finally, the paper shows that reciprocity furnishes a rationale for the composition of teams of reciprocal workers when the production technology induces negative externality among the employees’ efforts.