The Roles of Incentives and Voluntary Cooperation for Contractual Compliance

Simon Gächter, Esther Kessler () and Manfred Königstein ()
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Esther Kessler: University College London
Manfred Königstein: University of Erfurt

No 5774, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Efficiency under contractual incompleteness often requires voluntary cooperation in situations where self-regarding incentives for contractual compliance are present as well. Here we provide a comprehensive experimental analysis based on the gift-exchange game of how explicit and implicit incentives affect cooperation. We first show that there is substantial cooperation under non-incentive compatible contracts. Incentive-compatible contracts induce best-reply effort and crowd out any voluntary cooperation. Further experiments show that this result is robust to two important variables: experiencing Trust contracts without any incentives and implicit incentives coming from repeated interaction. Implicit incentives have a strong positive effect on effort only under non-incentive compatible contracts.

Keywords: principal-agent games; gift-exchange experiments; incomplete contracts; explicit incentives; implicit incentives; repeated games; separability; experiments (search for similar items in EconPapers)
JEL-codes: C70 C90 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: The roles of incentives and voluntary cooperation for contractual compliance (2011)
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