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

Syed Munawar Shah () and Mariani Abdul-Majid ()
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Syed Munawar Shah: Balochistan University of Information Technology and Management Sciences,

Islamic Economic Studies, 2019, vol. 27-1, 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 (search for similar items in EconPapers)
JEL-codes: B52 C72 C72 (search for similar items in EconPapers)
Date: 2019
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