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The interaction between explicit and relational incentives: An experiment

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  • Sloof, Randolph
  • Sonnemans, Joep

Abstract

We consider repeated trust game experiments to study the interplay between explicit and relational incentives. After having gained experience with two payoff variations of the trust game, subjects in the final part explicitly choose which of these two variants to play. Theory predicts that subjects will choose the payoff dominated game (representing a bad explicit contract), because this game better sustains (implicit) relational incentives backed by either reputational or reciprocity considerations. Our main findings are that cooperation is indeed more likely in the payoff dominated game. Moreover, indefinite repetition increases both cooperation rates and the likelihood with which the payoff dominated game is chosen. Overall we conclude that available explicit incentives indeed do affect relational contracting and, anticipating this, agents may choose weak explicit incentives to facilitate implicit agreements.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 73 (2011)
Issue (Month): 2 ()
Pages: 573-594

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Handle: RePEc:eee:gamebe:v:73:y:2011:i:2:p:573-594

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Web page: http://www.elsevier.com/locate/inca/622836

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Keywords: Relational contracts; Explicit incentives; Crowding out; Experiments;

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Cited by:
  1. Diathesopoulos, Michael, 2010. "Relational contract theory and management contracts: A paradigm for the application of the Theory of the Norms," MPRA Paper 24028, University Library of Munich, Germany.
  2. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
  3. David A. Miller & Joel Watson, 2013. "A Theory of Disagreement in Repeated Games With Bargaining," Econometrica, Econometric Society, vol. 81(6), pages 2303-2350, November.

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