Optimal Incentives with State‐Dependent Preferences

In both experimental and natural settings, incentives sometimes underperform, generating smaller effects on the targeted behaviors than would be predicted for entirely self‐regarding agents. A parsimonious explanation is that incentives that appeal to self‐regarding economic motives may crowd out noneconomic motives such as altruism, reciprocity, intrinsic motivation, ethical values, and other social preferences, leading to disappointing and sometimes even counterproductive incentive effects. We present evidence from behavioral experiments that crowding may take two forms: categorical (the effect on preferences depends only on the presence or absence of the incentive) or marginal (the effect depends on the extent of the incentive). We extend an earlier contribution (Bowles and Hwang, 2008 ) to include categorical crowding, thus providing a more general framework for the study of optimal incentives and as a result, an expanded range of situations for which the sophisticated planner will (surprisingly) make greater use of incentives when incentives crowd out social preferences than when motivational crowding is absent.     

公平与互惠理论视角的知识员工激励

知识员工的特性使得基于理性人假设的经济契约不能进行有效激励。本文建立了基于知识员工互惠性的委托-代理模型。研究结果显示,新模型的最优委托-代理合约可给委托人带来比传统的委托-代理最优合约更高的利润水平。     

Subjective Performance Evaluations and Reciprocity in Principal–Agent Relations

We conduct a laboratory experiment with agents working on, and principals benefiting from, a real effort task in which the agents' performance can only be evaluated subjectively. Principals give subjective performance feedback to agents, and agents have an opportunity to sanction principals. In contrast to existing models of reciprocity, we find that agents tend to sanction whenever the feedback of principals is below their subjective self‐evaluations even if agents' pay‐offs are independent of it. In turn, principals provide more positive feedback (relative to their actual performance assessment of the agent) if this does not affect their pay‐off.     

Tournaments with Prize‐setting Agents*

In some tournaments, it is the contestants themselves who determine reward allocation. Union members bargain over wage distribution, and some firms allow self‐managed teams to freely determine internal resource allocation, incentive structure, and division of labor. We analyze, and test experimentally, a tournament where heterogeneous agents determine the spread between winner prize and loser prize. We investigate the relationship between prize spread, uncertainty, heterogeneity, and effort. We find that a large prize spread is associated with a low degree of uncertainty and a high degree of heterogeneity, and that heterogeneity triggers effort. By and large, our real‐effort experiment supports the theoretical predictions.     

Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment

We study behavior within a simple principal-agent experiment. Our design allows for a large class of linear contracts. Principals can offer any feasible combination of (negative) fixed wages and incentives in the form of return sharing. This great contractual flexibility allows us to study incentive compatibility simultaneously with issues of 'fair sharing' and reciprocity, which were previously found to be important. We find a high degree of incentive-compatible behavior, but also 'fair sharing' and reciprocity. In contrast to other incentive devices studied in the literature, the incentives are 'reciprocity-compatible'. Principals recognize the agency problem and react accordingly.     

Breaking the norm: An empirical investigation into the unraveling of good behavior

We present results from an artefactual field experiment conducted in rural Peru that considers whether observing non-reciprocal behavior influences an individual's decision to reciprocate. Specifically, we consider the behavior of second movers in a trust game, assessing whether their decision to reciprocate is influenced by the observed reciprocity of others. In documenting the impact of an external shock to observed reciprocity, this paper shows that small increases in non-reciprocal behavior result in an unraveling of the norm of reciprocity. Survey data is used to explore mechanisms by which this occurred. Results are not consistent with learning effects, suggesting that preferences may be changed by observing others deviating from a norm of reciprocity. These results suggest that investing in encouraging trustworthy behavior can have large benefits in situations where individuals are observing each other's behavior, such as may be the case in a new market institution.     

Self-selection and the power of incentive schemes: an experimental study

We examine how self-selection of workers depends on the power of incentive schemes and how it affects team performance if the power of the incentive schemes is increased. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual incentives, subjects who chose team incentives perform worse if both the unobservable interdependency between their efforts and their incentive to cooperate under team incentives are high.     

A Theory of Bureaucratization Based on Reciprocity and Collusive Behavior

This paper addresses how an organization becomes a bureaucracy . Bureaucratization emerges from a self-enforced norm of reciprocity between agents in an organization who exchange favors and promote subgoals which differ from the objective of the firm. Such collusive behavior becomes harder and harder to prevent over time. As a result, incentive schemes lose their flexibility and bureaucratization becomes a necessary equilibrium phenomenon in the long run. The distribution of agents' private information, their preferences for the future and the force of the social norm of reciprocity are analyzed in terms of their effects on the long-run behavior of the organization and on the speed of the bureaucratization process.     

Imitation and the Incentive to Contribute Early in a Sequential Public Good Game

Whether motivated by reciprocity or conformity, imitation is common in public good contexts. We consider the incentive for an agent to contribute to a public good if he expects imitation from others. Using a sequential public good game with exogenous ordering, we show that agents early enough in the sequence who believe imitation to be sufficiently likely would want to contribute. By contributing, they expect total contributions to increase significantly. We also show that preferences determine how early an agent need be, that the observed share of imitators in experiments is sufficiently high to warrant contribution and that an increase in group size reduces the incentive to contribute.     

Social status and group norms: Indirect reciprocity in a repeated helping experiment

In the economic literature, reciprocity is typically studied in situations of repeated interaction between two individuals. It refers to one individual rewarding kind acts of the other or punishing hostile acts. In contrast, this paper studies indirect reciprocity, where a cooperative action is rewarded by a third actor, not involved in the original exchange. We provide experimental evidence on indirect reciprocity. The experiment is based on the ‘repeated helping game’ developed by Nowak and Sigmund (J. Theoret. Biol. 194 (1998) 561; Nature 393 (1998) 573), involving random pairing in large groups. Pairs consist of a donor and a recipient. Donors decide whether or not to provide costly ‘help’ to the recipients they are matched with, based on information about the recipient's behavior in encounters with third parties. We observe clear evidence of indirect reciprocity. Many decision-makers respond to the information about previous decisions (whether or not to help others) of the recipients. In our experiments, this indirect reciprocity is largely based on norms about how often the recipient should have helped others in the past. We show that these norms develop similarly within groups of interacting subjects, but distinctly across groups. This leads to the emergence of group norms.     

Motives for sharing in social networks

What motivates people in rural villages to share? We first elicit a baseline level of sharing using a standard, anonymous dictator game. Then using variants of the dictator game that allow for either revealing the dictator's identity or allowing the dictator to choose the recipient, we attribute variation in sharing to three different motives. The first of these, directed altruism, is related to preferences, while the remaining two are incentive-related (sanctions and reciprocity). We observe high average levels of sharing in our baseline treatment, while variation across individuals depends importantly on the incentive-related motives. Finally, variation in measured reciprocity within the experiment predicts observed ‘real-world’ gift-giving, while other motives measured in the experiment do not predict behavior outside the experiment.     

“GATT‐think” with Asymmetric Countries*

We argue that a trade agreement which conforms to GATT’s reciprocity rule benefits the (stronger) less trade‐dependent country at the expense of the (weaker) more trade‐dependent country. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash‐ bargaining solution, a “power‐based” approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger’s (1999 , 2000 ) view of reciprocity as a rule that “serves to mitigate the influence of power asymmetries on negotiated outcomes.”     

The robustness of the independent private value model in Bayesian mechanism design

Summary. In a Bayesian model of group decision-making, dependence among the agents' types has been shown to have a beneficial effect on the design of incentive compatible mechanisms that achieve the efficient choice associated with complete information. This effect is shown here to depend as much upon the use of large monetary transfers among the agents as it does upon dependence: if the transfers are bounded in magnitude, then nonexistence in the case of independence of an efficient, incentive compatible, ex ante budget-balanced and interim individually rational mechanism is robust to the introduction of a small amount of dependence among types. This robustness result supports the use of the simplifying assumption of independence in mechanism design. Received: October 28, 1996; revised version: May 28, 1997     

THE SECOND‐PRICE AUCTION SOLVES KING SOLOMON'S DILEMMA*

The planner wants to give k identical, indivisible objects to the top k valuation agents at zero costs. Each agent knows her own valuation of the object and whether it is among the top k. Modify the (k+ 1)st‐price sealed‐bid auction by introducing a small participation fee and the option not to participate in it. This simple mechanism implements the desired outcome in iteratively undominated strategies. Moreover, no pair of agents can profitably deviate from the equilibrium by coordinating their strategies or bribing each other.     

Weak monotonicity and Bayes–Nash incentive compatibility

An allocation rule is called Bayes–Nash incentive compatible, if there exists a payment rule, such that truthful reports of agents' types form a Bayes–Nash equilibrium in the direct revelation mechanism consisting of the allocation rule and the payment rule. This paper provides a characterization of Bayes–Nash incentive compatible allocation rules in social choice settings where agents have multi-dimensional types, quasi-linear utility functions and interdependent valuations. The characterization is derived by constructing complete directed graphs on agents' type spaces with cost of manipulation as lengths of edges. Weak monotonicity of the allocation rule corresponds to the condition that all 2-cycles in these graphs have non-negative length. For the case that type spaces are convex and the valuation for each outcome is a linear function in the agent's type, we show that weak monotonicity of the allocation rule together with an integrability condition is a necessary and sufficient condition for Bayes–Nash incentive compatibility.     

Reciprocity and voting

In this paper we present a two-period model where a left-wing and a right-wing political party are solely interested in the policies they pursue. We assume that voters display reciprocal behavior. By contrast, political parties are not motivated by reciprocity. We show that reciprocity may have dramatic consequences for models of voting behavior. The incentive to be kind to the median voter may ensure that a position closer to the median voter's position is adopted even if political parties are not directly interested in being elected and cannot commit to a political stance during an election campaign. Moreover, reciprocity increases incumbency advantages.     

Honesty in tournaments

We apply the die rolling experiment of Fischbacher and Föllmi-Heusi (2013) to a two-player tournament incentive scheme. Our treatments vary the prize spread. The data highlights that honesty is more pronounced when the prize spread is small.     

Residual Claims in Co‐operatives: Design Issues

This paper examines issues in the design of a co‐operative member's contractual relationship with the other agents (including the remaining members) using organizational economics. The paper assumes that the central defining characteristic of a co‐op is the residual claim specification. Agency theory identifies certain inherent problems of the co‐op form, the horizon problem, common property problem, and non‐transferability. Non‐transferability both reduces the incentive to monitor and imposes limits on portfolio diversification. This paper argues that features such as claim incompleteness and non‐transferability are not inherent to the co‐op but may be transaction‐cost economizing. The paper also argues that the pre‐emptive payoff feature by which the residual claimants (the co‐op members) also become fixed payoff agents can affect the risk of other agents, and is an important determinant of co‐op risk. A co‐op may have more than one potential residual claim base. Five generic design choices are available for handling possible multiple claim bases: battleground, pre‐specified allocation, limited return, alignment, and fixed payoff. The paper uses the design of residual claims in sugar co‐ops to show how a co‐op can partly overcome some of the problems identified by agency theory. This illustration ties together the issues of claim incompleteness and non‐transferability, pre‐emptive payoff, and multiple claim bases.     

Reciprocity and voting

In this paper we present a two-period model where a left-wing and a right-wing political party are solely interested in the policies they pursue. We assume that voters display reciprocal behavior. By contrast, political parties are not motivated by reciprocity. We show that reciprocity may have dramatic consequences for models of voting behavior. The incentive to be kind to the median voter may ensure that a position closer to the median voter's position is adopted even if political parties are not directly interested in being elected and cannot commit to a political stance during an election campaign. Moreover, reciprocity increases incumbency advantages.     

Perfect competition in asymmetric information economies: compatibility of efficiency and incentives

The idea of perfect competition for an economy with asymmetric information is formalized via an idiosyncratic signal process in which the private signals of almost every individual agent can influence only a negligible group of agents, and the individual agents’ relevant signals are essentially pairwise independent conditioned on the true states of nature. Thus, there is no incentive for an individual agent to manipulate her private information. The existence of incentive compatible, ex post Walrasian allocations is shown for such a perfectly competitive asymmetric information economy with or without “common values”. Consequently, the conflict between incentive compatibility and Pareto efficiency is resolved exactly, and its asymptotic version is derived for a sequence of large, but finite private information economies.