New Economics Papers
on Experimental Economics
Issue of 2011‒06‒25
ten papers chosen by



  1. The roles of incentives and voluntary cooperation for contractual compliance By Simon Gaechter; Esther Kessler; Manfred Koenigstein
  2. Escalation Bargaining: Theoretical Analysis and Experimental Test By Swee-Hoon Chuah; Robert Hoffmann; Jeremy Larner
  3. Managerial incentives under competitive pressure: Experimental investigation By Ahmed Ennasri; Marc Willinger
  4. Empathy, Guilt-Aversion and Patterns of Reciprocity By Vittorio Pelligra
  5. The Trophy Effect By Christoph Bühren; Marco Pleßner
  6. Equity Home Bias Among Czech Investors: Experimental Approach By Karel Báa
  7. USING MONEY TO MOTIVATE BOTH SAINTS AND SINNERS: A FIELD EXPERIMENT ON MOTIVATIONAL CROWDING-OUT By Antoine BERETTI; Charles FIGUIERES; Gilles GROLLEAU
  8. Do Security-differentiated Water Rights Improve Efficiency? By Marianne LEFEBVRE; Lata GANGADHARAN; Sophie THOYER
  9. Incentives vs. Selection in Promotion Tournaments: Can a Designer Kill Two Birds with One Stone? By Höchtl, Wolfgang; Kerschbamer, Rudolf; Stracke, Rudi; Sunde, Uwe
  10. When do people cooperate? The neuroeconomics of prosocial decision making By Declerck C.H.; Boone Ch.; Emonds G.

  1. By: Simon Gaechter (University of Nottingham); Esther Kessler (University College London); Manfred Koenigstein (Universitaet Erfurt)
    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
    JEL: C70 C90
    Date: 2011–06
    URL: http://d.repec.org/n?u=RePEc:cdx:dpaper:2011-06&r=exp
  2. By: Swee-Hoon Chuah (Nottingham University Business School, University of Nottingham); Robert Hoffmann (Nottingham University Business School, University of Nottingham); Jeremy Larner (Nottingham University Business School, University of Nottingham)
    Abstract: The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behaviour these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyse, theoretically and by experiment, a new game which permits escalation behaviour. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored.
    Keywords: escalation; brinkmanship; chicken game; experiments
    JEL: C72 C78 C91
    Date: 2011–05
    URL: http://d.repec.org/n?u=RePEc:cdx:dpaper:2011-05&r=exp
  3. By: Ahmed Ennasri; Marc Willinger
    Abstract: We investigate the effects of competition on managerial incentives and effort in a laboratory experiment. Each owner offers compensation to his manager in two different contexts: monopoly and Cournot duopoly. After accepting the compensation, the manager chooses an effort level to increase the probability of reduced costs of his firm. Theory predicts that the entry of a rival firm in a monopolistic industry affects negatively both the incentive compensation and the effort level. Our experimental findings confirm that the entry of a rival firm reduces the incentive compensation but not the manager’s effort level. However, despite the reduction of the incentive compensation, the manager continues to accept the contract offers and exert the same level of effort.
    Keywords: Managerial Incentives, Effort, Competition, Moral hazard, Experiments
    Date: 2011–06
    URL: http://d.repec.org/n?u=RePEc:lam:wpaper:12-11&r=exp
  4. By: Vittorio Pelligra
    Abstract: This paper reports the results of an experiment aimed at investigating the link between empathy, anticipated guilt and pro-social behavior. In particular we test the hypothesis that empathy modulates the anticipatory effect of guilt in bargaining situations and, more specifically, that it correlates with subjects’ willingness to give and to repay trust in an investment game. We also control for the effect of individual risk attitude. Our main results show that empathy significantly influences players’ pattern of restitution in the investment game and that risk-propensity weakly affects the decision to trust; we also find a significant gender difference in the distribution of empathy. These results seem to indicate that empathy affects pro-social behavior in a more complex way than previously hypothesized by existing models of social preferences.
    Keywords: Trust; Reciprocity; Guilt-Aversion; Empathy
    JEL: C78 C91 D63
    Date: 2011
    URL: http://d.repec.org/n?u=RePEc:cns:cnscwp:201108&r=exp
  5. By: Christoph Bühren (University of Kassel); Marco Pleßner
    Abstract: By extending a typical endowment effect experiment with the possibility to win the endow-ment in a real effort contest, we found two enforcing effects that led to a complete market failure. Subjects who won the item in the competition had an extremely high willingness to accept (trophy effect). By contrast, subjects who were not successful had an extremely low willingness to pay for the same item (reverse trophy effect). We disentangle the different components of the trophy effect, compare it to similar experiments, and discuss its important economic implications.
    Date: 2011
    URL: http://d.repec.org/n?u=RePEc:mar:magkse:201125&r=exp
  6. By: Karel Báa (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Equity home bias is a situation on equity market where domestic investors prefer invest too much into domestic equities despite the possible gains from diversification into foreign equities. Equity home bias can arise as a result of institutional or behavioral factors. In this paper I will compare the evidence with the prediction of the model of optimal portfolio with three different utility functions (Markowitz, Exponential and CRRA) the results of the investment experiment and the evidence from OECD (2009). The results have shown that in total the Czech investors are home biased (they hold 85 % of domestic equities in their equity portfolios). However, in experimental lab conditions were the students rather foreign biased. They have chosen only 14 % of Czech equities as opposed to the model recommendation of 22-54%. The possible reasons for foreign biasness in experimental conditions can be the absence of transaction and informational cost and explicit FX risk. Furthermore, I have discovered that the successful experimental investors have higher investment knowledge and that they trust in intuition.
    Keywords: Investment experiment, equity home bias, behavioral finance, optimal investment portfolio
    JEL: G11
    Date: 2011–08
    URL: http://d.repec.org/n?u=RePEc:fau:wpaper:wp2011_17&r=exp
  7. By: Antoine BERETTI; Charles FIGUIERES; Gilles GROLLEAU
    Abstract: Economists recognize that monetary incentives can backfire through the crowding-out of moral and social motivations leading to an overall decrease of the desired behavior. We implement a field experiment where participants are asked to fill a questionnaire on pro-environmental behaviors under different incentive schemes, either with no monetary incentive (control) or with low or high monetary incentive directed either to the respondents or to an environmental cause. We investigate whether (i) there is a significant crowding-out effect, (ii) directing monetary incentive to the cause rather than to the respondents reduces the overall impact of a crowding-out effect, and (iii) offering the choice regarding the money recipient aects participation. Except for a high monetary incentive where the respondent chooses himself the end-recipient, we show that monetary rewards directed either at the individual or at the cause actually harms intrinsic motivations, but not to the same extent. We formalize our results building on an adaptation of an original model by Bolle and Otto (2010) and introduce agents heterogeneity in terms of intrinsic motivation. This heterogeneity has key implications for the understanding of the crowding-out eect. Several policy recommendations regarding the use of market-based instruments are drawn.
    Date: 2011–06
    URL: http://d.repec.org/n?u=RePEc:lam:wpaper:15-11&r=exp
  8. By: Marianne LEFEBVRE; Lata GANGADHARAN; Sophie THOYER
    Abstract: Most existing water markets combine water rights trading and water allocation trading. Offering different levels of security for rights can make the market more sophisticated and allow water users to manage the risks of supply uncertainty better. We compare results from a laboratory experiment with two water right designs, one with a unique security level and another with two security levels. We find that a two security levels system improves both allocative eciency and risk management, but only when transactions costs are higher in the market for water allocation than in the market for water rights.
    Keywords: Crude Oil Pricing, Currency Basket, OPEC, Exchange Rate of Dollar, Euros, Yen.
    Date: 2011–06
    URL: http://d.repec.org/n?u=RePEc:lam:wpaper:14-11&r=exp
  9. By: Höchtl, Wolfgang (University of Innsbruck); Kerschbamer, Rudolf (University of Innsbruck); Stracke, Rudi (University of St. Gallen); Sunde, Uwe (University of St. Gallen)
    Abstract: This paper studies the performance of promotion tournaments with heterogeneous participants in two dimensions: incentive provision and selection. Our theoretical analysis reveals a trade-off for the tournament designer between the two goals: While total effort is maximized if less heterogeneous participants compete against each other early in the tournament, letting more heterogeneous participants compete early increases the accuracy in selection. Experimental evidence supports our theoretical findings, indicating that the optimal design of promotion tournaments crucially depends on the objectives of the tournament designer. These findings have important implications for the optimal design of promotion tournaments in organizations.
    Keywords: promotion tournaments, heterogeneity, incentive provision, selection
    JEL: M52 J33
    Date: 2011–05
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp5755&r=exp
  10. By: Declerck C.H.; Boone Ch.; Emonds G.
    Abstract: Understanding the roots of prosocial behavior is an interdisciplinary research endeavor that has generated an abundance of empirical data across many disciplines. This review integrates research findings from different fields into a theoretical framework that can account for when prosocial behavior is likely to occur. Specifically, we propose that the motivation to cooperate is generated by the reward system in the brain (extending from striatum to the ventromedial prefrontal cortex), and that it can be modulated by two neural networks: a cognitive control system (centered on the lateral prefrontal cortex) that processes extrinsic cooperative incentives, and/or a social cognition system (including the superior temporal sulcus, the anterior medial frontal cortex and the amygdala) that processes trust signals. The independent modulatory influence of incentives and trust on the decision to cooperate is substantiated by a growing body of neuroimaging data and reconciles the apparent paradox between economic versus social rationality in the literature, suggesting that we are in fact wired for both. Furthermore, the theoretical framework can account for substantial behavioral heterogeneity in prosocial behavior. Based on the existing data, we further postulate that self-regarding individuals (who are more likely to adopt an economically rational strategy) are more responsive to extrinsic cooperative incentives and therefore rely relatively more on cognitive control to make (un)cooperative decisions, whereas other-regarding individuals (who are more likely to adopt a socially rational strategy) are more sensitive to trust signals to avoid betrayal and recruit relatively more brain activity in the social cognition system.
    Date: 2011–06
    URL: http://d.repec.org/n?u=RePEc:ant:wpaper:2011009&r=exp

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