Human resource management and productivity in the "Trust Game Corporation"

Contemporary production activity is crucially determined by the performance of complex tasks with the characteristics of corporate trust games. In this paper, we outline a productivity paradox showing that, under reasonable conditions, the non cooperative solution, that yields a suboptimal firm output, is the equilibrium of corporate trust games when relational preferences are not sufficiently high. We show that tournaments and steeper pay for performance schemes may crowd out cooperation in presence of players preferences for relational goods. These findings help to explain firm investment in workers' relationships and the puzzle on the less than expected use of such schemes.