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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. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  2. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Fehr, Ernst & Schmidt, Klaus M., 2000. "Fairness, incentives, and contractual choices," Munich Reprints in Economics 20659, University of Munich, Department of Economics.
  4. Costa-Gomes, Miguel & Zauner, Klaus G., 2001. "Ultimatum Bargaining Behavior in Israel, Japan, Slovenia, and the United States: A Social Utility Analysis," Games and Economic Behavior, Elsevier, vol. 34(2), pages 238-269, February.
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  9. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1003-15, November.
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  11. Andreoni, James & Miller, John H., 2008. "Analyzing Choice with Revealed Preference: Is Altruism Rational?," Handbook of Experimental Economics Results, Elsevier.
  12. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  13. Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics 14, University of Munich, Department of Economics.
  14. 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.
  15. Antonio Cabrales & Antoni Calvó, 2002. "Social preferences and skill segregation," Economics Working Papers 629, Department of Economics and Business, Universitat Pompeu Fabra.
  16. 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.
  17. J. Ochs & Alvin E. Roth, 1998. "An experimental study of sequential bargaining," Levine's Working Paper Archive 331, David K. Levine.
  18. 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.
  19. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
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  21. Eyal Winter, 2003. "Incentives and Discrimination," Discussion Paper Series dp313, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  22. repec:dgr:kubcen:200582 is not listed on IDEAS
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