The roles of incentives and voluntary cooperation for contractual compliance

Simon Gaechter (), Esther Kessler () and Manfred Koenigstein ()
Additional contact information
Simon Gaechter: University of Nottingham
Esther Kessler: University College London
Manfred Koenigstein: Universitaet Erfurt
Authors registered in the RePEc Author Service: Simon Gächter

No 2011-06, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

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)
Date: 2011-06
New Economics Papers: this item is included in nep-bec, nep-cta, nep-evo, nep-exp, nep-gth, nep-hrm, nep-pbe and nep-soc
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Roles of Incentives and Voluntary Cooperation for Contractual Compliance (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcdx:2011-06

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