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Trust and reciprocity in incentive contracting

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  • 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.

Suggested Citation

  • Rigdon, Mary, 2009. "Trust and reciprocity in incentive contracting," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 93-105, May.
    • Handle: RePEc:eee:jeborg:v:70:y:2009:i:1-2:p:93-105
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    Cited by:

    1. 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).
    2. 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.
    3. 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.
    4. 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.
    5. Alexander W. Cappelen & Rune Jansen Hagen & Erik Ø. Sørensen & Bertil Tungodden, 2014. "Do Non-Enforceable Contracts Matter? Evidence from an International Lab Experiment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 100-113, March.
    6. Sean M. Handley & Corey M. Angst, 2015. "The impact of culture on the relationship between governance and opportunism in outsourcing relationships," Strategic Management Journal, Wiley Blackwell, vol. 36(9), pages 1412-1434, September.
    7. Gillies, Anthony S & Rigdon, Mary L, 2008. "Epistemic Conditions and Social Preferences in Trust Games," MPRA Paper 9626, University Library of Munich, Germany.
    8. 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.
    9. Mbiti, Isaac M. & Serra, Danila, 2018. "Health Workers' Behavior, Patient Reporting and Reputational Concerns: Lab-in-the-Field Experimental Evidence from Kenya," IZA Discussion Papers 11352, Institute for the Study of Labor (IZA).
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. 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.
    15. repec:beh:jbepv1:v:1:y:2017:i:1:p:61-68 is not listed on IDEAS
    16. 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.
    17. Cassar, Alessandra & Rigdon, Mary, 2011. "Trust and trustworthiness in networked exchange," Games and Economic Behavior, Elsevier, vol. 71(2), pages 282-303, March.
    18. 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.
    19. 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.

    More about this item

    Keywords

    Trust Reciprocity Incentive contracts Principal-agent Experimental economics;

    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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