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

Antonio Cabrales (), Raffaele Miniaci (), Marco Piovesan () and Giovanni Ponti ()

No 08-06, Discussion Papers from University of Copenhagen. Department of Economics

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.

Keywords: social preferences; team incentives; mechanism design; experimental economics (search for similar items in EconPapers)
JEL-codes: C90 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp and nep-soc
Date: 2008-03
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Working Paper: Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts (2009)
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