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The roles of incentives and voluntary cooperation for contractual compliance

Author

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  • Simon Gaechter

    () (University of Nottingham)

  • Esther Kessler

    () (University College London)

  • Manfred Koenigstein

    () (Universitaet Erfurt)

Abstract

Efficiency under contractual incompleteness often requires voluntary cooperation in situations where self-regarding incentives for contractual compliance are present as well. Here we provide a comprehensive experimental analysis based on the gift-exchange game of how explicit and implicit incentives affect cooperation. We first show that there is substantial cooperation under non-incentive compatible contracts. Incentive-compatible contracts induce best-reply effort and crowd out any voluntary cooperation. Further experiments show that this result is robust to two important variables: experiencing Trust contracts without any incentives and implicit incentives coming from repeated interaction. Implicit incentives have a strong positive effect on effort only under non-incentive compatible contracts.

Suggested Citation

  • Simon Gaechter & Esther Kessler & Manfred Koenigstein, 2011. "The roles of incentives and voluntary cooperation for contractual compliance," Discussion Papers 2011-06, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  • Handle: RePEc:not:notcdx:2011-06
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    Cited by:

    1. Schnedler, Wendelin & Vanberg, Christoph, 2014. "Playing ‘hard to get’: An economic rationale for crowding out of intrinsically motivated behavior," European Economic Review, Elsevier, vol. 68(C), pages 106-115.
    2. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2013. "Diverse Behavior Patterns in a Symmetric Society with Voluntary Partnerships," Working Papers e62, Tokyo Center for Economic Research.
    3. Igor Asanov & Simone Vannuccini, 2015. "Short- and Long-run Effects of External Interventions on Trust," Jena Economic Research Papers 2015-013, Friedrich-Schiller-University Jena.
    4. Prasad, Kislaya & Salmon, Timothy C., 2013. "Self Selection and market power in risk sharing contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 71-86.

    More about this item

    Keywords

    principal-agent games; gift-exchange experiments; incomplete contracts; explicit incentives; implicit incentives; repeated games; separability; experiments;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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