Economic Incentives and Social Preferences: Causal Evidence of Non-Separability
32 Pages Posted: 8 Aug 2013
Date Written: July 8, 2013
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: Suggested Citation