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Leveraging social relationships and transparency in the insider game


  • Gary Bolton

    () (University of Texas at Dallas)

  • Axel Ockenfels

    () (University of Cologne)

  • Peter Werner

    () (Maastricht University)


Abstract We exhibit a mechanism by which two parties leverage their social relationship to ratchet up the rents they collect from a third party residual claimant. Specifically, in a laboratory environment, we study a novel three-person insider game in which ‘insiders’ decide how to distribute profits among themselves and an ‘outsider’ who is the residual claimant. We find that the distribution of payments is largely determined by an informal quid pro quo among the two decision makers at the expense of the outsider. We then manipulate pay transparency and the competition to keep interaction partners, thereby improving the strategic position of one insider. Pay transparency increases the profit share that goes to rent seekers. In addition, rent extraction from the third party persists when competition for interaction partners is introduced. As a result, we find that payments both affect and reflect the influence of social relationships.

Suggested Citation

  • Gary Bolton & Axel Ockenfels & Peter Werner, 2016. "Leveraging social relationships and transparency in the insider game," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 2(2), pages 127-143, November.
  • Handle: RePEc:spr:jesaex:v:2:y:2016:i:2:d:10.1007_s40881-016-0030-x DOI: 10.1007/s40881-016-0030-x

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    Cited by:

    1. Schottmüller-Einwag, Ute, 2017. "Theoretische Erklärungsansätze für die Entsprechenserklärungen zu Abfindungen für Vorstandsmitglieder
      [Theoretical explanation approaches for the declarations of conformity regarding severance paym
      ," Discussion Papers of the Institute for Organisational Economics 7/2017, University of Münster, Institute for Organisational Economics.

    More about this item


    Transparency; Rent extraction; Social ties; Reciprocity;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement


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