Economic Incentives and Social Preferences: Causal Evidence of Non-Separability

32 Pages Posted: 8 Aug 2013

See all articles by Marco Faravelli

Marco Faravelli

The University of Queensland

Luca Stanca

University of Milan, Bicocca - Department of Economics; Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS); Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Date Written: July 8, 2013

Abstract

This paper provides a direct test of the hypothesis that agents' objective functions are non-separable in economic incentives and social preferences. We study experimentally fixed-prize contests using a 2x2 design, varying orthogonally the degree of competition of the incentive mechanism (all-pay auction vs. lottery) and the presence of absence of social returns to bidding (rent seeking vs. public good). The results indicate that either stronger competition or positive social returns have positive main effects on bids. In addition, we find a negative interaction between the all-pay auction mechanism and the public good environment, leading us to reject separability. This finding provides causal evidence that economic incentives may negatively affect pro-social behavior.

Keywords: Contests, Public goods, Rent-seeking, Social preferences, Separability, Laboratory experiments

JEL Classification: C91, D44, H41

Suggested Citation

Faravelli, Marco and Stanca, Luca, Economic Incentives and Social Preferences: Causal Evidence of Non-Separability (July 8, 2013). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 250. Available at SSRN: https://ssrn.com/abstract=2307420 or http://dx.doi.org/10.2139/ssrn.2307420

Marco Faravelli

The University of Queensland ( email )

Australia

Luca Stanca (Contact Author)

University of Milan, Bicocca - Department of Economics ( email )

Piazza dell'Ateneo, Nuovo I
Milan 20126
Italy

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

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