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Group identity and partnership

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  • Jiang, Jiang
  • Li, Sherry Xin

Abstract

We design a laboratory experiment to investigate how group identity influences decisions in a principal-agent framework with hidden actions and a revenue-sharing payment scheme. Group identity is induced by randomly assigning participants to groups and is further enhanced using a collective puzzle-solving task. We find that the principal makes a more generous revenue-sharing offer to the ingroup agent than to the outgroup agent. While an ingroup agent is less tolerant of a low offer from the principal, she exerts a greater effort in response to a more generous offer than does an outgroup agent. Our findings shed important light on the interplay of monetary incentives and group identity in tackling the principal-agent problem.

Suggested Citation

  • Jiang, Jiang & Li, Sherry Xin, 2019. "Group identity and partnership," Journal of Economic Behavior & Organization, Elsevier, vol. 160(C), pages 202-213.
  • Handle: RePEc:eee:jeborg:v:160:y:2019:i:c:p:202-213
    DOI: 10.1016/j.jebo.2019.03.003
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    Keywords

    Group identity; Principal-agent problem; Hidden action; Laboratory experiment;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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