The Dark Side of Reciprocity Volume 5 Jena Economic Research Papers 2011-11-04 2011 2007 2011-052 Extra Effort Horizontal Reciprocity Negative Reciprocity Whether friendship or competitive relationships deserve to be encouraged in the workplace is not obvious a priori. In this paper we derive the conditions under which a profit-maximizing employer finds it convenient to induce a rat race among workers exhibiting horizontal reciprocity in order to obtain underpaid or unpaid extra effort. We characterize the optimal compensation scheme under both symmetric and asymmetric information about workers’ actions, and we also derive conditions for our result to hold in the presence of vertical reciprocity. jportal_jpjournal_00000016 2011-12-01T07:42:07.365Z 2011-11-04T12:56:44.316Z