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An experiment on markets and contracts : do social preferences determine corporate culture?

  • Antonio Cabrales
  • Raffaele Miniaci
  • Marco Piovesan
  • Giovanni Ponti

    ()

This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three treatments. In the last treatment, TR3, four principals, who face four teams of two agents, compete by offering the agents a contract from a fixed menu. In this menu, each contract is the optimal solution of a (complete information) mechanism design problem where principals face agents’ who have social (i.e. interdependent) distributional preferences a’ la Fehr and Schmidt [19] with a specific parametrization. Each agent selects one of the available contracts offered by the principals (i.e. he “chooses to work” for a principal). Production is determined by the outcome of a simple effort game induced by the chosen contract. In the first two treatments, TR1 and TR2, we estimate individual social preference parameters and beliefs in the effort game, respectively. We find that social preferences are significant determinants of the matching process between labor supply and demand in the market stage, as well as principals’ and agents’ contract and effort decisions. In addition, we also see that social preferences explain the matching process in the labor market, as agents display a higher propensity to choose to work for a principal with similar distributional preferences.

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File URL: http://e-archivo.uc3m.es/bitstream/10016/677/1/we072010.pdf
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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we072010.

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Date of creation: Mar 2007
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Handle: RePEc:cte:werepe:we072010
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  1. James Andreoni & John H Miller, 2001. "Analyzing Choice with Revealed Preference: Is Altruism Rational," Levine's Working Paper Archive 563824000000000096, David K. Levine.
  2. Ernst Fehr & Klaus M. Schmidt, . "Fairness, Incentives, and Contractual Choices," IEW - Working Papers 020, Institute for Empirical Research in Economics - University of Zurich.
  3. James C. Cox & Daniel Friedman & Steven Gjerstad, 2006. "A Tractable Model of Reciprocity and Fairness," Experimental Economics Center Working Paper Series 2006-05, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  4. Miguel Costa-Gomes & Klaus G. Zauner, . "Ultimatum Bargaining Behavior in Israel, Japan, Slovenia and the United States: A Social Utility Analysis," Discussion Papers 00/37, Department of Economics, University of York.
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  8. Arthur van Soest & Charles Bellemare & Sabine Kroger, 2005. "Actions and beliefs: Estimating distribution-based preferences using a large scale experiment with probability questions on expectations," Artefactual Field Experiments 00007, The Field Experiments Website.
  9. Manski, Charles F., 2002. "Identification of decision rules in experiments on simple games of proposal and response," European Economic Review, Elsevier, vol. 46(4-5), pages 880-891, May.
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  12. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  13. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
  14. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-136, December.
  15. J. Ochs & Alvin E. Roth, 1998. "An experimental study of sequential bargaining," Levine's Working Paper Archive 331, David K. Levine.
  16. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
  17. Antonio Cabrales & Antoni Calvó, 2002. "Social preferences and skill segregation," Economics Working Papers 629, Department of Economics and Business, Universitat Pompeu Fabra.
  18. David Card & John E. DiNardo, 2002. "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," NBER Working Papers 8769, National Bureau of Economic Research, Inc.
  19. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  20. Eyal Winter, 2004. "Incentives and Discrimination," American Economic Review, American Economic Association, vol. 94(3), pages 764-773, June.
  21. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
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