Emotional Hazard in a Power-to-take Experiment
VU University Amsterdam
Frans van Winden
University of Amsterdam - Faculty of Economics and Business (FEB); CESifo (Center for Economic Studies and Ifo Institute)
The Economic Journal, Vol. 112, pp. 147-169, 2002
In this experimental study of a two player power-to-take game, players earn an income in an individual effort task preceding the game. The game has two stages. First, one player can claim any part of the other's income (take rate). Then, the latter player can respond by destroying own income. We focus on how emotions influence responses and show: (1) a higher take rate increases (decreases) intensity of negative (positive) emotions; (2) negative emotions drive destruction; (3) at high emotional intensity, responders destroy everything; (4) expectations affect the probability of punishment. Emotional hazard is identified as a new source of efficiency costs.
Number of Pages in PDF File: 23
Date posted: November 13, 2002