TY - JOUR
T1 - Trust and reciprocity in incentive contracting
AU - Rigdon, Mary
N1 - Funding Information:
This work has been supported by NSF Grant No. SES-0355425. Thanks are due to James Alt and the Center for Basic Research in the Social Sciences (now the Institute for Quantitative Social Sciences) at Harvard University, Kevin McCabe, Uri Gneezy, Al Roth and the Computer Laboratory for Experimental Research at Harvard Business School, Rachel Croson, Laura Razzolini, James Andreoni, Yan Chen, Ananish Chaudhuri, David Laibson, and the participants of the 2004 Harvard Experimental and Behavioral Workshop. All errors remain mine.
PY - 2009/5
Y1 - 2009/5
N2 - Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post punishments or rewards to align incentives. Field data are mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off-equilibrium cooperation, and at high incentive levels cooperation is crowded in.
AB - Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post punishments or rewards to align incentives. Field data are mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off-equilibrium cooperation, and at high incentive levels cooperation is crowded in.
KW - Experimental economics
KW - Incentive contracts
KW - Principal-agent
KW - Reciprocity
KW - Trust
UR - http://www.scopus.com/inward/record.url?scp=64249124072&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=64249124072&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2009.01.006
DO - 10.1016/j.jebo.2009.01.006
M3 - Article
AN - SCOPUS:64249124072
SN - 0167-2681
VL - 70
SP - 93
EP - 105
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
IS - 1-2
ER -