Partnerships, Imperfect Monitoring and Outside Options: Theory and Experimental Evidence

Paolo Crosetto, Alexia Gaudeul and Gerhard Riener

No 2012-052, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: We study theoretically and experimentally a two-person partnership game whereby agents only see the uncertain outcome of their joint effort but not how much the other agent contributed to it. The model combines problems of free-riding present in public good production and in teams with imperfect monitoring. We analyse effort and exit behaviour conditional on subjects' beliefs over the action taken by their partners and consider the effect of the availability and profitability of outside options. Our subjects do not adapt effort as a response to changes in their beliefs about the effort of their partner. Subjects display aversion for team work by exiting the partnership even when they believe their partner exerts sufficient effort to sustain it. Higher outside options do not either motivate or discourage effort in joint work but rather result in not only inefficient but also irrational breakdown in partnerships. Overall, social welfare decreases as the incentive to exit increases.

Keywords: Imperfect monitoring; outside options; partnerships; public good production; repeated games; teams (search for similar items in EconPapers)
JEL-codes: D82 H41 (search for similar items in EconPapers)
Date: 2012-09-11
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp, nep-gth and nep-net
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Related works:
Working Paper: Of the stability of partnerships when individuals have outside options, or why allowing exit is inefficient (2015)
Working Paper: Fear of being left alone drives inefficient exit from partnerships. An experiment (2014)
Working Paper: Fear of being left alone drives inefficient exit from partnerships. An experiment (2014)
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