Reciprocity, self-interest and reputation: debt vs equity contracts

Syed Munawar Shah and Mariani Abdul-Majid

Islamic Economic Studies, 2019, vol. 27, issue 1, 53-64

Abstract: Purpose - The purpose of this paper is to examine whether reputation element affects the decision relative performance of trust, bonus and incentive contracts using social laboratory experiments. Design/methodology/approach - The study conducts the following lab experiments bonus–incentive treatment without reputation, bonus–incentive treatment with reputation and trust–incentive treatment with reputation. Findings - The study finds that the reputation and fairness concerns, in contrast to self-interest, may have a decisive impact on the actual and optimal choices in the reciprocity-based contracts. The principal pays higher salaries in the bonus contract as compared to an incentive contract. Originality/value - The study contributes to the behavioral economic literature in the following dimensions. The existing literature on lab experiments considers a bonus contract as better than the debt contract; however, it does not consider the trust contract better than the debt contract.

Keywords: Self-Interest; Reciprocity; Reputation; Debt contract; Equity contract; B52; C72; K5; I8; O2; O6 (search for similar items in EconPapers)
Date: 2019
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Journal Article: Reciprocity, self-interest and reputation: debt vs equity contracts (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:iespps:ies-05-2019-0004

DOI: 10.1108/IES-05-2019-0004

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