Do Incentive Contracts Crowd out Voluntary Cooperation?
Ernst Fehr () and
Authors registered in the RePEc Author Service: Simon Gächter ()
No 34, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich
In this paper we provide experimental evidence indicating that incentive contracts may cause a strong crowding out of reciprocity-driven voluntary cooperation. This crowding out effect constitutes costs of incentive provision that have been largely neglected by economists. In our experiments the crowding out effect is so strong that the incentive contracts are less efficient than contracts without any incentives. Principals, nonetheless, prefer the incentive contracts because they allow them to appropriate a much larger share of the (smaller) total surplus and are, hence, more profitable for them.
Keywords: Incentive contracts; reciprocity; incomplete contracts; voluntary cooperation; experiments (search for similar items in EconPapers)
JEL-codes: J41 C91 D64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-fin, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (31) Track citations by RSS feed
Downloads: (external link)
Working Paper: Do Incentive Contracts Crowd Out Voluntary Cooperation? (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: /RePEc:zur:iewwpx:034
Access Statistics for this paper
More papers in IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich
Contact information at EDIRC.
Series data maintained by Marita Kieser ().