When no bad deed goes punished: Relational contracting in Ghana and the UK

Elwyn Davies and Marcel Fafchamps

Journal of Economic Behavior & Organization, 2021, vol. 191, issue C, 714-737

Abstract: Experiment evidence to date indicates that subjects follow a trigger strategy in finitely repeated games: they punish bad contractual performance by reducing future offers and the threat of punishment disciplines opportunistic breach. This behavior contradicts standard game theory predictions. We conduct a repeated prisoner's dilemma (PD) game experiment with university students in Ghana and the UK. The experiment is framed as an employment contract. Each period the employer makes a irrevocable wage offer to the worker who then chooses an effort level. UK subjects use a trigger strategy to discipline workers, in line with previous experiments: wage offers reward high effort and punish low effort in the past; this induces workers to choose high effort; and gains from trade are shared between workers and employers. We find no such evidence with Ghana subjects: employers seldom reduce wage offers after low effort and, if they do, workers respond by lowering effort; employer often reduce wages after high effort; and employers earn a zero payoff on average. Introducing competition or reputation does not significantly improve workers’ effort. We conclude that the use of trigger strategies in repeated labor transactions is not a universally shared heuristic.

Keywords: Relational contracting; Labor incentives; Gift-exchange game; Punishment strategies; Ghana (search for similar items in EconPapers)
JEL-codes: C71 D2 D86 E24 O1 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: When No Bad Deed Goes Punished: Relational Contracting in Ghana and the UK (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:191:y:2021:i:c:p:714-737

DOI: 10.1016/j.jebo.2021.09.024

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