Can Contracts Signal Social Norms? Experimental Evidence
44 Pages Posted: 13 Jul 2013
We investigate whether incentive schemes signal social norms and thus affect behavior beyond their direct economic consequences. A principal-agent experiment is studied in which prior to contract choice principals are informed about past actions of other agents and thus have more information about "norms of behavior". Compared to a setting with uninformed principals agents exert nearly 50% higher efforts under a fixed wage contract when an informed principal had chosen this contract. Apparently the informed principal's choice signals a norm not to exploit the trust which leads to more trustworthy behavior. This mechanism's robustness is explored in further experiments.
Keywords: social norms, contracts, incentives, signaling, experiments
JEL Classification: D03, C91, D86
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