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Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts

Author

Listed:
  • Antonio Cabrales

    (Universidad Carlos III de Madrid)

  • Raffaele Miniaci

    (Università di Brescia)

  • Marco Piovesan

    (Department of Economics, University of Copenhagen)

  • Giovanni Ponti

    (Universidad de Alicante)

Abstract

This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three phases. In the first two phases, P1 and P2; agents face simple games, which we use to estimate subjects' social and reciprocity concerns, together with their beliefs. In the last phase, P3; four principals, who face four teams of two agents, compete by offering agents a contract from a fixed menu. Then, each agent selects one of the available contracts (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. We find that (heterogeneous) social preferences are significant determinants of choices in all phases of the experiment. Since the available contracts display a trade-off between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences.

Suggested Citation

  • Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2008. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," Discussion Papers 08-06, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0806
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    social preferences; team incentives; mechanism design; experimental economics;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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