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

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  • Antonio Cabrales

    (Universidad Carlos III de Madrid)

  • Raffaele Miniaci

    (Università di Brescia)

  • Marco Piovesan

    (Department of Economics, University of Copenhagen)

  • Giovanni Ponti

    (Universidad de Alicante)

Abstract

This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three phases. In the first two phases, P1 and P2; agents face simple games, which we use to estimate subjects' social and reciprocity concerns, together with their beliefs. In the last phase, P3; 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 effort 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-off 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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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-06.

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Length: 36 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:kud:kuiedp:0806

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Keywords: social preferences; team incentives; mechanism design; experimental economics;

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