Academic journal article Review of Social Economy

On the Use of the Prisoners' Dilemma to Analyze the Relations between Employment Security, Trust, and Effort

Academic journal article Review of Social Economy

On the Use of the Prisoners' Dilemma to Analyze the Relations between Employment Security, Trust, and Effort

Article excerpt

Abstract Sociologists and political scientists have argued that the explanatory adequacy of economics is undermined by unreasonable assumptions of rationality. Yet interpretations that make strong rationality assumptions remain common. Analyses of the effects of employment security on work effort provide one example. The iterated prisoners' dilemma has been used to deduce a positive effect of employment security on work effort. Several difficulties with this approach are identified, including that the cooperative solution to the iterated prisoners' dilemma game i) requires infinite play or uncertainty about the end of the repetitions of the game; ii) is made less likely where there are structural bases for divergent interests; iii) ignores the possibility that employers might choose to shift the game to another arena. In general, there is the difficulty that employer-employee relations involve three simultaneous prisoners' dilemmas. The paper concludes that the hyper-rational approach implied in the prisoners ' dilemma is an unpromising route for the analysis of the effects of employment security.

Keywords: prisoners' dilemma, tit-for-tat strategy, trust, employment security, effort

Programmatic treatments of the idea of economic sociology tend to emphasise two aspects of behavior: limits on calculative capacity and the diffuseness of motives. Neoclassical economics is inadequate, it is argued, because it fails to recognize the extent to which preferences--and therefore motivations--are diverse, unstable, and dependent on social milieus and situations (e.g. Zelizer 1989; DiMaggio 1990; Elster 1990a: 98; Zukin and DiMaggio 1990: 23; Hirsch et al. 1990: 43; Swedberg et al. 1990: 61). This complexity in the environment of motives is itself a challenge to calculative capacities. There are multiple optima, poor and/or costly information, strategic interactions through which individuals have to adjust their choices of action on the basis of their expectations of the behavior of others, and some forms of behavior that can be considered irrational (Elster 1990b).

Despite widespread and frequent assertions of the positions described above, political scientists and sociologists writing on economic phenomena display ambivalence. Accounts that assume clear and limited preferences and very highly developed calculative capacities remain common. In what follows I examine in some detail a rational choice approach in terms of the so-called 'prisoners' dilemma' to one particular economic problem--the relationship between employment security and work effort, although the argument can be applied to the entire employment contract.


Effort is problematic (e.g. Offe 1985: 20-25). Employees vary in the extent to which they exert themselves, agree to move between tasks, or take initiative when initiative is called for. There is good reason to believe that average levels of effort--in the forms listed above--vary between work sites. It is also thought that there is variation across countries, with consequences for relative levels of competitiveness and aggregate economic performance.

A major component of the history of management is successive attempts to secure consistent effort from employees (e.g. Pollard 1968). There are two standard approaches to doing so--supervision, and incentive systems. There are difficulties with each. Close supervision is costly and sometimes not technically feasible, for example, where work is remotely located or where it involves the exercise of skills that complicate supervisory judgments of effort. Piece work most directly ties pay to effort. It is the most reliable incentive system. But, among other difficulties, much work has team-like characteristics that make it impossible to attribute output to any particular individual. Other incentive systems that allocate rewards to groups encounter problems of free riding within those groups. …

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