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

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Author Info
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)

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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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Publisher 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
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Handle: RePEc:kud:kuiedp:0806

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Related research
Keywords: social preferences team incentives mechanism design experimental economics

Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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