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An Experimental Investigation of Fairness and Reciprocal Behavior in a Simple Principal-Multiagent Relationship (Updated version of the older "Fairness in Hierarchical Triangles: an Experimental Study")

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  • Alessandro Rossi
  • Massimo Warglien

Abstract

Issues of fairness within the agency framework have traditionally been investigated - both theoretically and experimentally -- within two alternative approaches: a vertical, hierarchical framework (studies of fairness in the agency relationship between one principal and one single agent) and a horizontal, agent-to-agent framework (studies of reciprocity in peers' interactions under alternative incentive schemes). We explore in the laboratory a game which integrates vertical and horizontal relationships and allows to investigate how principal's fairness affects cooperation between two interdependent agents performing a simple production game. We set a 2-stage game where, in the second stage, agents play a prisoner's dilemma game and, in the first stage, the principal can withdraw any share of the output generated by the agents in the second stage. Despite theory predicting that no fairness should be observed by the principal and no cooperation should be observed by agents, our experimental findings show that agents are to some extent sensitive to principal's fairness. When the principal plays unfair (fair) agents are frequently observed to jointly defect (cooperate). Thus, fairness considerations on principal's actions may act as a coordination device for the agents and reciprocal behavior may, as a result, affect their propensity towards cooperation or defection in the game.

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Bibliographic Info

Paper provided by Department of Computer and Management Sciences, University of Trento, Italy in its series ROCK Working Papers with number 009.

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Date of creation: Jan 2000
Date of revision: 12 Jun 2008
Handle: RePEc:trt:rockwp:009

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References

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  1. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 2003. "Gift Exchange and Reciprocity in Competitive Experimental Markets," Labor and Demography 0305002, EconWPA.
  2. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  3. repec:wop:humbsf:1999-82 is not listed on IDEAS
  4. Vital Anderhub & Simon Gächter & Manfred Königstein, 2002. "Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment," Experimental Economics, Springer, vol. 5(1), pages 5-27, June.
  5. Andreoni, James A & Miller, John H, 1993. "Rational Cooperation in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence," Economic Journal, Royal Economic Society, vol. 103(418), pages 570-85, May.
  6. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 433-46, July.
  7. Nalbantian, Haig R & Schotter, Andrew, 1997. "Productivity under Group Incentives: An Experimental Study," American Economic Review, American Economic Association, vol. 87(3), pages 314-41, June.
  8. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  9. Fehr, Ernst, et al, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 324-51, April.
  10. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 2001. "Reciprocity as a Contract Enforcement Device," Levine's Working Paper Archive 563824000000000143, David K. Levine.
  11. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  12. Itoh, Hideshi, 1994. "Job design, delegation and cooperation: A principal-agent analysis," European Economic Review, Elsevier, vol. 38(3-4), pages 691-700, April.
  13. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
  14. Alessandro Rossi, 1999. "Incentives in Managerial Compensation: A Survey of Experimental Research. (Draft Paper)," ROCK Working Papers 003, Department of Computer and Management Sciences, University of Trento, Italy, revised 12 Jun 2008.
  15. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  16. Keser, Claudia & Willinger, Marc, 2000. "Principals' principles when agents' actions are hidden," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 163-185, January.
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