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Trust and Reciprocity in Incentive Contracting

Mary Rigdon ()

Experimental from EconWPA

Abstract: Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post}punishments and 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; principal-agent; bargaining; trust; cooperation; punishment; reward (search for similar items in EconPapers)
JEL-codes: C70 C91 D63 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-exp and nep-soc
Date: 2005-11-30
Note: Type of Document - pdf; pages: 33
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http://econwpa.repec.org/eps/exp/papers/0511/0511007.pdf (application/pdf)

Related works:
Journal Article: Trust and reciprocity in incentive contracting (2009) Downloads
Working Paper: Trust and reciprocity in incentive contracting (2006) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpex:0511007

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