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Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts

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Author Info
Antonio Cabrales
Raffaele Miniaci
Marco Piovesan
Giovanni Ponti

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Abstract

This paper reports a 3-phase experiment on a stylized labor market. In the first two phases, agents face simple games, which we use to estimate subjects’ social and reciprocity concerns, together with their beliefs. In the last phase, four principals, who face four teams of two agents, compete by offering agents a contract from a fixed menu. Then, each agent selects one of the available contracts (i.e. he “chooses to work” for a principal). Production is determined by the outcome of a simple e ort game induced by the chosen contract. We find that (heterogeneous) social preferences are significant determinants of choices in all phases of the experiment. Since the available contracts display a trade-o between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences.

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Paper provided by FEDEA in its series Working Papers with number 2009-09.

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Date of creation: Feb 2009
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Handle: RePEc:fda:fdaddt:2009-09

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