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Trust and reciprocity in incentive contracting

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  • Rigdon, Mary

Abstract

Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post punishments or rewards to align incentives. Field data is mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off-equilibrium cooperation, and at high incentive levels cooperation is crowded in.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2007.

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Date of creation: May 2005
Date of revision: 15 May 2006
Handle: RePEc:pra:mprapa:2007

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Keywords: incentives; trust; reciprocity; organizations; experimental economics;

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Citations

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Cited by:
  1. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy," CESifo Working Paper Series, CESifo Group Munich 2734, CESifo Group Munich.
  2. Kanagaretnam, Kiridaran & Mestelman, Stuart & Khalid Nainar, S.M. & Shehata, Mohamed, 2012. "The impact of empowering investors on trust and trustworthiness," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(3), pages 566-577.
  3. David Naranjo-Gil & Laura Gomez-Ruiz & Maria Jesus Sanchez-Exposito, 2011. "Neuroscience and management: challenges for behavioural research in organizations," Journal of Positive Management, Uniwersytet Mikolaja Kopernika, Uniwersytet Mikolaja Kopernika, vol. 2, pages 45-58.
  4. Cassar, Alessandra & Rigdon, Mary, 2011. "Trust and trustworthiness in networked exchange," Games and Economic Behavior, Elsevier, Elsevier, vol. 71(2), pages 282-303, March.
  5. Arjan Non, 2011. "Gift-Exchange, Incentives, and Heterogeneous Workers," CESifo Working Paper Series, CESifo Group Munich 3547, CESifo Group Munich.
  6. Sääksvuori, Lauri, 2013. "Voluntary formation of centralized sanctioning institutions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 44(C), pages 150-159.
  7. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena, Department of Economics, University of Siena 617, Department of Economics, University of Siena.
  8. Ben-Ner, Avner & Putterman, Louis & Ren, Ting, 2011. "Lavish returns on cheap talk: Two-way communication in trust games," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 40(1), pages 1-13, February.
  9. Maria J. Sanchez-Exposito & David Naranjo-Gil, 2012. "Honesty and Management Control System Design: An Experimental Study," Working Papers, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration) 12.05, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).
  10. Avner Ben-Ner & Louis Putterman, . "Trust, Communication and Contracts: An Experiment," Working Papers, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus) 0206, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  11. Paul Dolan & Matteo M. Galizzi, 2014. "Because I'm Worth It: A Lab-Field Experiment on the Spillover Effects of Incentives in Health," CEP Discussion Papers, Centre for Economic Performance, LSE dp1286, Centre for Economic Performance, LSE.
  12. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2009-11, University of Massachusetts Amherst, Department of Economics.
  13. Gillies, Anthony S & Rigdon, Mary L, 2008. "Epistemic Conditions and Social Preferences in Trust Games," MPRA Paper, University Library of Munich, Germany 9626, University Library of Munich, Germany.

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