Punishment Incentives in Principal-Agent Dynamics: Insights from a Public Goods Game Experiment

Sandro Casal, Päivi Maijanen, Luigi Mittone () and Azzurra Morreale
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Sandro Casal: University of Trento, Italy
Päivi Maijanen: LUT University, Business School, Finland
Luigi Mittone: University of Trento, Italy
Azzurra Morreale: LUT University, Business School, Finland

Journal of Behavioral Economics for Policy, 2024, vol. 8, issue 2, 27-40

Abstract: This paper experimentally investigates the impact of punishment on agents' behavior in a principal-agent framework. The study focuses on agency problems that arise from conflicting incentive structures between principals (managers) and agents (employees). We aim to determine whether a punishment mechanism can reduce these agency problems and align agents' actions with the principal's objectives. In our experimental setup, managers, acting as principals, can use punishment to influence employees' (agents') efforts and decisions. The results indicate that punishment does affect employees' choices, leading them to select projects with higher returns for the manager. However, the punishment mechanism does not fully achieve its intended effect, as managers cannot consistently influence the level of employee contributions.

Keywords: agency theory; financial incentives; punishment; laboratory experiment (search for similar items in EconPapers)
Date: 2024
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