Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts

Antonio Cabrales, Raffaele Miniaci, Marco Piovesan, Giovanni Ponti

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Abstract

This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three phases. In the first two phases, P1 and P2; agents face simple games, which we use to estimate subjects' social and reciprocity concerns, together with their beliefs. In the last phase, P3; four principals, who face four teams of two agents, compete by offering agents a contract from a fixed menu. Then, each agent selects one of the available contracts (i.e. he "chooses to work" for a principal). Production is determined by the outcome of a simple effort game induced by the chosen contract. We find that (heterogeneous) social preferences are significant determinants of choices in all phases of the experiment. Since the available contracts display a trade-off between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences
Original languageEnglish
PublisherDepartment of Economics, University of Copenhagen
Number of pages36
Publication statusPublished - 2008

Keywords

  • Faculty of Social Sciences
  • team incentives
  • mechanism design
  • experimental economics

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