Advanced Search
MyIDEAS: Login to save this paper or follow this series

Incentive Compatible Contracts?

Contents:

Author Info

  • Lisa Bruttel
  • Gerald Eisenkopf

Abstract

Property rights theory suggests that vertical integration is a sensible solution to hold-up problems and therefore improves social welfare. Theories of reciprocity, in contrast, suggest that vertical integration can reduce social welfare if it implies an unfair distribution. Translating the hold-up situation into a simple prisoners’ dilemma game, we provide experimental evidence for social preferences at the individual level. Some individuals behave conditionally cooperative in the hold-up situation and some do not cooperate when they are offered an incentive compatible but unfair contract. Nevertheless, property rights theory correctly predicts that vertical integration increases aggregate welfare even in the case of unfair outcomes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.twi-kreuzlingen.ch/uploads/tx_cal/media/TWI-RPS-043-Bruttel-Eisenkopf-2009-05.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Thurgauer Wirtschaftsinstitut, Universität Konstanz in its series TWI Research Paper Series with number 43.

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:twi:respas:0043

Contact details of provider:
Postal: Hauptstr. 90, CH-8280 Kreuzlingen 2
Phone: +41-71-677 05 10
Fax: +41-71-677 05 11
Email:
Web page: http://www.twi-kreuzlingen.ch/
More information through EDIRC

Related research

Keywords: Prisoners’ Dilemma; Hold-up Problem; Experiment;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fehr, Ernst & Kremhelmer, Susanne & Schmidt, Klaus M., 2008. "Fairness and the optimal allocation of ownership rights," Munich Reprints in Economics, University of Munich, Department of Economics 20626, University of Munich, Department of Economics.
  2. Urs Fischbacher & Simon Gaechter, 2009. "Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Good Experiments," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2009-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  3. Simon Gächter & Christian Thöni, 2004. "Social learning and voluntary cooperation among like-minded people," University of St. Gallen Department of Economics working paper series 2004 2004-12, Department of Economics, University of St. Gallen.
  4. Ernst Fehr & Armin Falk, 2002. "Psychological Foundations of Incentives," CESifo Working Paper Series 714, CESifo Group Munich.
  5. Brosig, Jeannette & Riechmann, Thomas & Weimann, Joachim, 2007. "Selfish in the End?:An Investigation of Consistency and Stability of individual Behavior," MPRA Paper 2035, University Library of Munich, Germany.
  6. Altmann, Steffen & Dohmen, Thomas & Wibral, Matthias, 2008. "Do the reciprocal trust less?," Economics Letters, Elsevier, Elsevier, vol. 99(3), pages 454-457, June.
  7. Raghuram G. Rajan & Luigi Zingales, 1998. "Power In A Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 387-432, May.
  8. Falk, Armin & Fischbacher, Urs, 2001. "A Theory of Reciprocity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3014, C.E.P.R. Discussion Papers.
  9. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, Elsevier, vol. 47(2), pages 268-298, May.
  10. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1812, C.E.P.R. Discussion Papers.
  11. Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2005. "Fairness and Contract Design," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 67, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  12. Heski Bar-Isaac, 2007. "Something to prove: reputation in teams," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 495-511, 06.
  13. Simon Gaechter & Daniele Nosenzo & Elke Renner & Martin Sefton, 2009. "Who Makes a Good Leader? Social Preferences and Leading-by-Example," Levine's Working Paper Archive 814577000000000099, David K. Levine.
  14. Randolph Sloof & Hessel Oosterbeek & Joep Sonnemans, 2007. "Does Making Specific Investments Unobservable Boost Investment Incentives?," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 16(4), pages 911-942, December.
  15. Jean Tirole, 1985. "Procurement and Renegotiation," Working papers 362, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 166-193, March.
  17. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers, University of California at Berkeley 92-199, University of California at Berkeley.
  18. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 39-84, February.
  19. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
  20. Benedikt Herrmann & Henrik Orzen, 2008. "The appearance of homo rivalis: Social preferences and the nature of rent seeking," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2008-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  21. Tore Ellingsen & Magnus Johannesson, 2004. "Is There a Hold-up Problem?," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 106(3), pages 475-494, October.
  22. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  23. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(481), pages 539-558, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Simon Gaechter & Daniele Nosenzo & Elke Renner & Martin Sefton, 2009. "Who Makes A Good Leader? Cooperativeness, Optimism And Leading-By-Example," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2009-19, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Mathias Erlei & Wiebke Roß, 2013. "Bounded Rationality as an Essential Ingredient of the Holdup Problem," TUC Working Papers in Economics, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal) 0009, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:twi:respas:0043. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ulrich Wacker).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.