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Economic Incentives and Social Preferences: Causal Evidence of Non-Separability

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  • Marco Faravelli
  • Luca Stanca

Abstract

This paper provides a direct test of the hypothesis that agents' objective functions are non-separable in economic incentives and social preferences. We study experimentally fixed-prize contests using a 2x2 design, varying orthogonally the degree of competition of the incentive mechanism (all-pay auction vs. lottery) and the presence or absence of social returns to bidding (rent seeking vs. public good). The results indicate that either stronger competition or positive social returns have positive main effects on bids. In addition, we find a negative interaction between the all-pay auction mechanism and the public good environment, leading us to reject separability. This finding provides causal evidence that economic incentives may negatively affect pro-social behavior.

Suggested Citation

  • Marco Faravelli & Luca Stanca, 2013. "Economic Incentives and Social Preferences: Causal Evidence of Non-Separability," Working Papers 250, University of Milano-Bicocca, Department of Economics, revised Jul 2013.
  • Handle: RePEc:mib:wpaper:250
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    References listed on IDEAS

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    1. Luca Corazzini & Marco Faravelli & Luca Stanca, 2010. "A Prize To Give For: An Experiment on Public Good Funding Mechanisms," Economic Journal, Royal Economic Society, vol. 120(547), pages 944-967, September.
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    Cited by:

    1. Andrej Angelovski & Tibor Neugebauer & Maroš Servatka, 2017. "Can Rank-Order Competition Resolve the Free-Rider Problem in the Voluntary Provision of Impure Public Goods? Experimental Evidence," Working Papers CESARE 1705, Dipartimento di Economia e Finanza, LUISS Guido Carli.

    More about this item

    Keywords

    Contests; Public goods; Rent-seeking; Social preferences; Separability; Laboratory experiments;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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