Incentive Contracts versus Trust in Three-Person Ultimatum Games - An Experimental Study

Susanne Büchner, Luis Gonzalez, Werner Güth () and Maria Vittoria Levati ()

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Whether incentive contracts perform better than trust in terms of productive efficiency is usually explored by principal-agent experiments (most involving only one agent). We investigate this issue in the context of a three-person ultimatum experiment, which is simpler and more neutrally framed than traditional principal-agent designs. Contrary to the game theoretic prediction, we find that (mutual) trust is as good as incentive contracts in inducing costly actions by employees. Moreover, we observe an interesting order effect when switching from one regime to the other. This could be important when considering institutional change since (according to our data) early behavioral patterns may be irreversible.

Keywords: Ultimatum Game; Incentives; Trust; Fairness; Greasing (search for similar items in EconPapers)
JEL-codes: C70 C90 D20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-reg
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Journal Article: Incentive contracts versus trust in three-person ultimatum games: an experimental study (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:esi:discus:2002-20

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