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Incentivizing group investments: Surplus sharing agreements in theory and experiment

Author

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  • Guney, Begum
  • Kibris, Arzu
  • Kıbrıs, Özgür

Abstract

A better understanding of surplus sharing is crucial for improving collective action outcomes in investment contexts where individual decisions yield group-level results. This study explores how surplus sharing agreements affect total contribution levels in such environments. We first develop a theoretical framework and then examine its implications through an incentivized laboratory experiment. Our main result shows that a pre-commitment to allocating positive surpluses proportionally and negative surpluses according to a fixed ratio leads to significantly higher total contributions than allocating surpluses solely either proportionally or by a fixed ratio. Furthermore, total contributions under the purely proportional and the purely fixed sharing agreements do not differ significantly. Finally, the degree of inequality embedded in a fixed share allocation does not significantly affect total contribution levels.

Suggested Citation

  • Guney, Begum & Kibris, Arzu & Kıbrıs, Özgür, 2025. "Incentivizing group investments: Surplus sharing agreements in theory and experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 240(C).
    • Handle: RePEc:eee:jeborg:v:240:y:2025:i:c:s0167268125004482
    DOI: 10.1016/j.jebo.2025.107331
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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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