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Repeated moral hazard and contracts with memory: A laboratory experiment

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  • Nieken, Petra
  • Schmitz, Patrick W.

Abstract

This paper reports data from a laboratory experiment on two-period moral hazard problems. The findings corroborate the contract-theoretic insight that even though the periods are technologically unrelated, due to incentive considerations principals can benefit from offering long-term contracts that exhibit memory.

Suggested Citation

  • Nieken, Petra & Schmitz, Patrick W., 2012. "Repeated moral hazard and contracts with memory: A laboratory experiment," Games and Economic Behavior, Elsevier, vol. 75(2), pages 1000-1008.
  • Handle: RePEc:eee:gamebe:v:75:y:2012:i:2:p:1000-1008
    DOI: 10.1016/j.geb.2012.02.011
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    Cited by:

    1. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, vol. 62(11), pages 3138-3160, November.
    2. Müller, Daniel & Schmitz, Patrick W., 2015. "Overdeterrence of repeat offenders when penalties for first-time offenders are restricted," Economics Letters, Elsevier, vol. 129(C), pages 116-120.
    3. Weinschenk, Philipp, 2017. "Working conditions and regulation," Labour Economics, Elsevier, vol. 44(C), pages 177-191.
    4. Siegert, Caspar & Trepper, Piers, 2015. "Optimal tolerance for failure," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 41-55.
    5. At, Christian & Gabuthy, Yannick, 2015. "Moral hazard and agency relationship in sequential litigation," International Review of Law and Economics, Elsevier, vol. 41(C), pages 86-90.
    6. Matthias Fahn & Anne Schade & Katharina Schüßler, 2017. "What Drives Reciprocal Behavior? The Optimal Provision of Incentives over the Course of Careers," CESifo Working Paper Series 6635, CESifo Group Munich.
    7. Giuseppe Attanasi & Kene Boun My & Marco Buso & Anne Stenger, 2016. "Private investment with social benefits under uncertainty: the dark side of public financing," Working Papers of BETA 2016-12, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    8. Kräkel, Matthias & Müller, Daniel, 2015. "Merger efficiency and managerial incentives," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 51-63.
    9. Esteve-González, Patricia, 2016. "Moral hazard in repeated procurement of services," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 244-269.
    10. Lorens Imhof & Matthias Kräkel, 2016. "Ex post unbalanced tournaments," RAND Journal of Economics, RAND Corporation, vol. 47(1), pages 73-98, February.
    11. Mahmoud Sami Nabi, 2016. "Revisiting equity and debt: access to finance and economic inefficiency," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 63(4), pages 393-429, December.
    12. Kräkel, Matthias, 2016. "Peer effects and incentives," Games and Economic Behavior, Elsevier, vol. 97(C), pages 120-127.
    13. Auriol, Emmanuelle & Friebel, Guido & von Bieberstein, Frauke, 2016. "The firm as the locus of social comparisons: Standard promotion practices versus up-or-out," Journal of Economic Behavior & Organization, Elsevier, vol. 121(C), pages 41-59.
    14. Daniel Müller & Philipp Weinschenk, 2015. "Rater Bias and Incentive Provision," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 833-862, October.
    15. David Martimort & Stéphane Straub, 2016. "How To Design Infrastructure Contracts In A Warming World: A Critical Appraisal Of Public–Private Partnerships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 61-88, February.
    16. Graham, Brad & Robles, Jack, 2016. "Attorney fees in repeated relationships," Working Paper Series 5074, Victoria University of Wellington, School of Economics and Finance.
    17. Schmitz, Patrick W., 2013. "Job design with conflicting tasks reconsidered," European Economic Review, Elsevier, vol. 57(C), pages 108-117.
    18. Kräkel, Matthias, 2016. "Peer effects and incentives," Games and Economic Behavior, Elsevier, vol. 97(C), pages 120-127.
    19. Pi, Jiancai, 2014. "Job design with sequential tasks and outcome externalities revisited," Economics Letters, Elsevier, vol. 125(2), pages 274-277.
    20. Axelson, Ulf & Bond, Philip, 2015. "Wall Street occupations," LSE Research Online Documents on Economics 37448, London School of Economics and Political Science, LSE Library.
    21. repec:eee:ecolet:v:159:y:2017:i:c:p:195-197 is not listed on IDEAS
    22. Kräkel, Matthias & Schöttner, Anja, 2016. "Optimal sales force compensation," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 179-195.
    23. repec:wly:mgtdec:v:38:y:2017:i:8:p:1216-1226 is not listed on IDEAS

    More about this item

    Keywords

    Repeated moral hazard; Sequential hidden actions; Laboratory experiment;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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