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Trust and reciprocity in incentive contracting

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Listed author(s):
  • Rigdon, Mary

Abstract

Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post punishments or rewards to align incentives. Field data are mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off-equilibrium cooperation, and at high incentive levels cooperation is crowded in.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167-2681(09)00011-0
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 70 (2009)
Issue (Month): 1-2 (May)
Pages: 93-105

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Handle: RePEc:eee:jeborg:v:70:y:2009:i:1-2:p:93-105
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

Keywords: Trust Reciprocity Incentive contracts Principal-agent Experimental economics;

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Find related papers by JEL classification:
  • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
  • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
  • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
  • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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Cited by:

  1. Sääksvuori, Lauri, 2013. "Voluntary formation of centralized sanctioning institutions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 44(C), pages 150-159.
  2. Kanagaretnam, Kiridaran & Mestelman, Stuart & Khalid Nainar, S.M. & Shehata, Mohamed, 2012. "The impact of empowering investors on trust and trustworthiness," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 566-577.
  3. Maria J. Sanchez-Exposito & David Naranjo-Gil, 2012. "Honesty and Management Control System Design: An Experimental Study," Working Papers 12.05, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).
  4. Calabuig, Vicente & Fatas, Enrique & Olcina, Gonzalo & Rodriguez-Lara, Ismael, 2016. "Carry a big stick, or no stick at all," Journal of Economic Psychology, Elsevier, vol. 57(C), pages 153-171.
  5. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
  6. Ben-Ner, Avner & Putterman, Louis & Ren, Ting, 2011. "Lavish returns on cheap talk: Two-way communication in trust games," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(1), pages 1-13, February.
  7. Ben-Ner, Avner & Putterman, Louis, 2009. "Trust, communication and contracts: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 106-121, May.
  8. Dolan, Paul & Galizzi, Matteo M. & Navarro-Martinez, Daniel, 2015. "Paying people to eat or not to eat? Carryover effects of monetary incentives on eating behaviour," Social Science & Medicine, Elsevier, vol. 133(C), pages 153-158.
  9. Gillies, Anthony S & Rigdon, Mary L, 2008. "Epistemic Conditions and Social Preferences in Trust Games," MPRA Paper 9626, University Library of Munich, Germany.
  10. Patrick Aquino & Robert S. Gazzale & Sarah Jacobson, 2015. "When Do Punishment Institutions Work?," Department of Economics Working Papers 2015-15, Department of Economics, Williams College, revised Aug 2015.
  11. Paul Dolan & Matteo M. Galizzi, 2014. "Because I'm Worth It: A Lab-Field Experiment on the Spillover Effects of Incentives in Health," CEP Discussion Papers dp1286, Centre for Economic Performance, LSE.
  12. repec:beh:jbep11:v:1:y:2017:i:1:p:61-68 is not listed on IDEAS
  13. Cassar, Alessandra & Rigdon, Mary, 2011. "Trust and trustworthiness in networked exchange," Games and Economic Behavior, Elsevier, vol. 71(2), pages 282-303, March.
  14. Dolan, Paul & Galizzi, Matteo M., 2015. "Like ripples on a pond: Behavioral spillovers and their implications for research and policy," Journal of Economic Psychology, Elsevier, vol. 47(C), pages 1-16.
  15. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," UMASS Amherst Economics Working Papers 2009-11, University of Massachusetts Amherst, Department of Economics.
  16. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy," CESifo Working Paper Series 2734, CESifo Group Munich.

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