Experimental Departures from Self-Interest When Competing Partnerships Share Output
Resources for the Future Discussion Paper No. 13-07
40 Pages Posted: 27 Mar 2013
Date Written: March 11, 2013
When every individual's effort imposes negative externalities, self-interested behavior leads to socially excessive effort. To curb these excesses when effort cannot be monitored, competing output-sharing partnerships can form. With the right-sized groups, aggregate effort falls to the socially optimal level. We investigate this theory experimentally and find it makes correct qualitative predictions but there are systematic quantitative deviations, always in the direction of the socially optimal investment. By using data on subjects' conjectures of each other's behavior we show that deviations are consistent with both altruism and conformity (but not extremeness aversion).
Keywords: output-sharing, partnership solution, laboratory experiment, altruism, conformity
JEL Classification: L23, Q20, Q22, O13
Suggested Citation: Suggested Citation