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Mediocrity and induced reciprocity

  • Natalia Montinari


  • Antonio Nicolo


  • Regine Oexl


We report evidence from an experiment where a principal chooses an agent out of two to perform a task for a fixed compensation. The principal's payoff depends on the agent's ex-ante ability and on a non-contractible effort that the agent has to exert once employed. We find that a significant share of principals select the mediocre agent (i.e. the one with the lower ex-ante ability). When the principal is allowed to send a message, mediocre agents exert more effort than agents with higher ability, and principals who choose mediocre agents on average have a larger payoff than principals who select agents with higher ability. This difference in effort overcompensates the difference in ability. Mediocre agents reciprocate more than agents who have ex-ante higher ability when the principals are able to make them feeling indebted.

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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2012-19.

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Length: 29
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:inn:wpaper:2012-19
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