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

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  • Cabrales, Antonio
  • Miniaci, Raffaele
  • Piovesan, Marco
  • Ponti, Giovanni

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 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 Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/9051.

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Date of creation: 2010
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Publication status: Published in American Economic Review, forthcoming (2010) v., p.-
Handle: RePEc:ner:carlos:info:hdl:10016/9051

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Web page: http://www.uc3m.es

Related research

Keywords: Social Preferences; Team Incentives; Mechanism Design; Experimental;

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References

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Citations

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Cited by:
  1. Carlos Alós-Ferrer & Simon Weidenholzer, 2010. "Imitation and the Role of Information in Overcoming Coordination Failures," Vienna Economics Papers 1008, University of Vienna, Department of Economics.
  2. Cunyat, Antoni & Sloof, Randolph, 2011. "Employee types and endogenous organizational design: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 553-573.
  3. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism design and intentions," ECON - Working Papers 066, Department of Economics - University of Zurich, revised Aug 2012.
  4. Dunia López-Pintado & Juan D. Moreno-Ternero, 2011. "On the optimal management of teams under budget constraints," Working Papers 11.11, Universidad Pablo de Olavide, Department of Economics.
  5. Piovesan, Marco & Wengström, Erik, 2009. "Fast or fair? A study of response times," Economics Letters, Elsevier, vol. 105(2), pages 193-196, November.
  6. Antonio Cabrales, 2010. "The causes and economic consequences of envy," SERIEs, Spanish Economic Association, vol. 1(4), pages 371-386, September.
  7. Andersson, Ola & Argenton, Cédric & Weibull, Jörgen W., 2012. "Robustness to Strategic Uncertainty," Working Paper Series 910, Research Institute of Industrial Economics.
  8. Sabrina Teyssier, 2012. "Inequity and risk aversion in sequential public good games," Public Choice, Springer, vol. 151(1), pages 91-119, April.
  9. Höchtl, Wolfgang & Sausgruber, Rupert & Tyran, Jean-Robert, 2012. "Inequality aversion and voting on redistribution," European Economic Review, Elsevier, vol. 56(7), pages 1406-1421.
  10. Trautmann, S.T. & Kuilen, G. van de, 2011. "Belief Elicitation: A Horse Race among Truth Serums," Discussion Paper 2011-117, Tilburg University, Center for Economic Research.
  11. Florian Englmaier & Sebastian Strasser & Joachim Winter, 2011. "Worker Characteristics and Wage Differentials: Evidence from a Gift-Exchange Experiment," CESifo Working Paper Series 3637, CESifo Group Munich.
  12. Nicola Frignani & Giovanni Ponti, 2011. "Social vs. risk preferences under the veil of ignorance," Working Papers. Serie AD 2011-07, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  13. Sabrina Teyssier, 2009. "Inequity and Risk Aversion in Sequential Public Good Games," TWI Research Paper Series 47, Thurgauer Wirtschaftsinstitut, Universität Konstanz.

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