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The Interaction between Explicit and Relational Incentives: An Experiment

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  • Randolph Sloof

    (University of Amsterdam)

  • Joep Sonnemans

    (University of Amsterdam)

Abstract

This discussion paper resulted in a publication in 'Games and Economic Behavior' , 73(2), 573-94. We consider repeated trust game experiments to study the interplay between explicit and relational incentives. After having gained experience with two payoff variations of the trust game, subjects in the final part explicitly choose which of these two variants to play. Theory predicts that subjects will choose the payoff dominated game (representing a bad explicit contract), because this game better sustains (implicit) relational incentives backed by either reputational or reciprocity considerations. We also explicitly test how game choice is affected by the length of the repeated game.

Suggested Citation

  • Randolph Sloof & Joep Sonnemans, 2009. "The Interaction between Explicit and Relational Incentives: An Experiment," Tinbergen Institute Discussion Papers 09-030/1, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20090030
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    Cited by:

    1. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
    2. Bryan C. McCannon & Colleen Tokar Asaad & Mark Wilson, 2016. "Financial competence, overconfidence, and trusting investments: Results from an experiment," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(3), pages 590-606, July.
    3. David A. Miller & Joel Watson, 2013. "A Theory of Disagreement in Repeated Games With Bargaining," Econometrica, Econometric Society, vol. 81(6), pages 2303-2350, November.
    4. Erkal, Nisvan & Wu, Steven Y. & Roe, Brian E., 2014. "Strategic Incomplete Contracts: Theory and Experiments," IZA Discussion Papers 8704, Institute for the Study of Labor (IZA).
    5. Mccannon, Bryan C., 2014. "Trust, reciprocity, and a preference for economic freedom: experimental evidence," Journal of Institutional Economics, Cambridge University Press, vol. 10(03), pages 451-470, September.
    6. Bryan C. McCannon & Colleen Tokar Asaad & Mark Wilson, 2015. "Contracts and Trust," Working Papers 15-15, Department of Economics, West Virginia University.

    More about this item

    Keywords

    relational contracts; explicit incentives; crowding out; experiments;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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