Trust and reciprocity in incentive contracting

Mary Rigdon ()

MPRA Paper from University Library of Munich, Germany

Abstract: Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post punishments or rewards to align incentives. Field data is mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off-equilibrium cooperation, and at high incentive levels cooperation is crowded in.

Keywords: incentives; trust; reciprocity; organizations; experimental economics (search for similar items in EconPapers)
JEL-codes: D01 D02 D00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-exp and nep-soc
Date: 2005-05, Revised 2006-05-15
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http://mpra.ub.uni-muenchen.de/2007/

Related works:
Working Paper: Trust and Reciprocity in Incentive Contracting (2005)
Journal Article: Trust and reciprocity in incentive contracting (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:2007

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