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Can Contracts Signal Social Norms? Experimental Evidence

  • Danilov, Anastasia

    ()

    (University of Cologne)

  • Sliwka, Dirk

    ()

    (University of Cologne)

We investigate whether incentive schemes signal social norms and thus affect behavior beyond their direct economic consequences. A principal-agent experiment is studied in which prior to contract choice principals are informed about past actions of other agents and thus have more information about "norms of behavior". Compared to a setting with uninformed principals agents exert nearly 50% higher efforts under a fixed wage contract when an informed principal had chosen this contract. Apparently the informed principal's choice signals a norm not to exploit the trust which leads to more trustworthy behavior. This mechanism's robustness is explored in further experiments.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7477.

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Length: 44 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7477
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