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Optimal Contracting with Altruism and Reciprocity

Motivated by the recent experimental evidence on altruistic behavior, we study a simple principal-agent model where each player cares about other players’ utility, and may reciprocate their attitude towards him. We show that, relative to the selfish benchmark, efficiency improves when players are altruistic. Nevertheless, in contrast to what may be expected, an increase in the degree of the agent’s altruism as well as a more reciprocal behavior by players has ambiguous effects on efficiency. We also consider the effects of the presence of spiteful players and discuss how monetary transfers between players depend on their degrees of altruism and spitefulness.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 342.

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Date of creation: 10 Oct 2013
Publication status: Published in Research in Economics, 2014, 68(1), 27–38
Handle: RePEc:sef:csefwp:342
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  1. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  2. Shchetinin, Oleg, 2009. "Contracting Under Reciprocal Altruism," MPRA Paper 13457, University Library of Munich, Germany.
  3. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
  4. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
  5. Dufwenberg, Martin & Kirchsteiger, Georg, 2000. "Reciprocity and wage undercutting," European Economic Review, Elsevier, vol. 44(4-6), pages 1069-1078, May.
  6. Josse Delfgaauw & Robert Dur, 2004. "Incentives and Workers’ Motivation in the Public Sector," CESifo Working Paper Series 1223, CESifo Group Munich.
  7. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
  8. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
  9. Battigalli, Pierpaolo & Dufwenberg, Martin, 2009. "Dynamic psychological games," Journal of Economic Theory, Elsevier, vol. 144(1), pages 1-35, January.
  10. Giuseppe De Marco & Giovanni Immordino, 2010. "Partnership, Reciprocity and Team Design," CSEF Working Papers 257, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 24 Mar 2011.
  11. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
  12. Siciliani, Luigi, 2009. "Paying for performance and motivation crowding out," Economics Letters, Elsevier, vol. 103(2), pages 68-71, May.
  13. Robert Dur, 2008. "Gift Exchange in the Workplace: Money or Attention?," CESifo Working Paper Series 2496, CESifo Group Munich.
  14. Josse Delfgaauw & Robert A.J. Dur, 2002. "From Public Monopsony to Competitive Market: More Efficiency but Higher Prices," Tinbergen Institute Discussion Papers 02-118/1, Tinbergen Institute, revised 31 Jan 2008.
  15. Dawes, Robyn M & Thaler, Richard H, 1988. "Anomalies: Cooperation," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 187-197, Summer.
  16. Becker, Gary S, 1976. "Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology," Journal of Economic Literature, American Economic Association, vol. 14(3), pages 817-826, September.
  17. Ernst Fehr & John List, 2004. "The hidden costs and returns of incentives - trust and trustworthiness among ceos," Artefactual Field Experiments 00044, The Field Experiments Website.
  18. Falk, Armin & Fischbacher, Urs, 2001. "A Theory of Reciprocity," CEPR Discussion Papers 3014, C.E.P.R. Discussion Papers.
  19. Shchetinin, Oleg, 2009. "Altruism and Career Concerns," TSE Working Papers 09-093, Toulouse School of Economics (TSE).
  20. Philippe Chone & Ching-to Albert Ma, 2005. "Asymmetric Information from Physician Agency:Optimal Payment and Healthcare Quantity," Boston University - Department of Economics - Working Papers Series WP2005-006, Boston University - Department of Economics.
  21. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
  22. Gill, David & Prowse, Victoria & Vlassopoulos, Michael, 2013. "Cheating in the workplace: An experimental study of the impact of bonuses and productivity," MPRA Paper 50166, University Library of Munich, Germany.
  23. David P. Baron & Roger B. Myerson, 1979. "Regulating a Monopolist with Unknown Costs," Discussion Papers 412, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  24. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  25. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  26. Thaler, Richard H, 1988. "Anomalies: The Winner's Curse," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 191-202, Winter.
  27. Netzer, Nick & Schmutzler, Armin, 2010. "Rotten Kids with Bad Intentions," CEPR Discussion Papers 7667, C.E.P.R. Discussion Papers.
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