The Monotonicity Puzzle. An Experimental Investigation of Incentives Structures
AbstractNon–monotone incentive structures, which — according to theory — are able to induce optimal behavior, are often regarded as empirically less relevant for labor relationships. Scientific attention is (therefore) confined to monotone if not linear contracts. This paper reports on experimental tests comparing non–monotone vs. monotone contracts in a simple dynamic agency model. The results demonstrate that selecting the non–monotone contract over of the monotone one is not only optimal from a theoretical point of view, but also remains preferable given the agents’ observed behavior. However, roughly 50 per cent of the principals prefer the monotone contract.
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Bibliographic InfoPaper provided by Thurgauer Wirtschaftsinstitut, Universität Konstanz in its series TWI Research Paper Series with number 15.
Date of creation: 2006
Date of revision:
experimental agency; non–monotone contracts;
Other versions of this item:
- Jeannette Brosig & Christian Lukas & Thomas Riechmann, 2010. "The Monotonicity Puzzle: An Experimental Investigation of Incentive Structures," BuR - Business Research, German Academic Association for Business Research, vol. 3(1), pages 8-35, May.
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