Published Online:https://doi.org/10.1287/mnsc.2016.2630

This paper investigates physiological responses to perceptions of unfair pay. We use an integrated approach that exploits complementarities between controlled laboratory and representative panel data. In a simple principal–agent experiment, agents produce revenue by working on a tedious task. Principals decide how this revenue is allocated between themselves and their agents. Throughout the experiment we record agents’ heart rate variability, which is an indicator of stress-related impaired cardiac autonomic control and which has been shown to predict coronary heart disease in the long run. Our findings establish a link between unfair payment and heart rate variability. Building on these findings, we further test for potential adverse health effects of unfair pay using observational data from a large representative panel data set. Complementary to our experimental findings we show a strong and significant negative association between unfair pay and health outcomes, in particular cardiovascular health.

Data are available at https://doi.org/10.1287/mnsc.2016.2630.

This paper was accepted by Uri Gneezy, behavioral economics.

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