Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts
Universidad Carlos III de Madrid
University of Brescia - Department of Economics
University of Copenhagen
Universidad de Alicante - Department of Economic Analysis; University of Ferrara; University College London - ESRC Centre for Economic Learning and Social Evolution (ELSE)
Univ. of Copenhagen Dept. of Economics Discussion Paper No. 08-06
This paper reports a 3-phase experiment on a stylized labor market. In the first two phases, agents face simple games, which we use to estimate subjects' social and reciprocity concerns, together with their beliefs. In the last phase, four principals, who face four teams of two agents, compete by offering agents a contract from a fixed menu. Then, each agent selects one of the available contracts (i.e. he "chooses to work" for a principal). Production is determined by the outcome of a simple effort game induced by the chosen contract. We find that (heterogeneous) social preferences are significant determinants of choices in all phases of the experiment. Since the available contracts display a trade-off between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences.
Number of Pages in PDF File: 48
Keywords: Social Preferences, Team Incentives, Mechanism Design, Experimental Economics
JEL Classification: C90, D86working papers series
Date posted: May 6, 2008
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