The Roles of Incentives and Voluntary Cooperation for Contractual Compliance
Author | : Simon Gächter |
Publisher | : |
Total Pages | : |
Release | : 2011 |
ISBN-10 | : OCLC:838868369 |
ISBN-13 | : |
Rating | : 4/5 (69 Downloads) |
Book excerpt: 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. -- principal-agent games ; gift-exchange experiments ; incomplete contracts ; explicit incentives ; implicit incentives ; repeated games ; separability ; experiments