15 research outputs found

    Bargaining under incomplete information, fairness, and the hold-up problem

    Full text link
    "In the hold-up problem incomplete contracts cause the proceeds of relationship-specific investments to be allocated by bargaining. This paper investigates the corresponding investment incentives if individuals have heterogeneous fairness preferences and thus differ in their bargaining behavior. Individual preferences are taken to be private information. Investments can then signal preferences and thereby influence beliefs and bargaining behavior. In consequence, individuals might choose high investments in order not to signal information that is unfavorable in the ensuing bargaining." [author's abstract

    Equal sharing rules in partnerships

    Full text link
    Partnerships are the prevalent organizational form in many industries. Profits are most frequently shared equally among the partners. The purpose of our paper is to provide a rationale for equal sharing rules. We show that with inequity averse partners the equal sharing rule is the unique sharing rule that maximizes the partners' incentives to exert effort. We further show that inequity aversion can enhance efficiency in partnerships of given size, but that it can also cause partnerships to be inefficiently small

    Decision Initiation, Decision Implementation, and the Allocation of Decision Rights

    Full text link
    Organizations must not only take the right decisions, they must also ensure that these decisions are effectively implemented. Fama & Jensen (1983) argue that the same members of many organization are often responsible for both decision initiation and implementation. If these have social preferences, they might thus sabotage both project choices and implementation to express their discontent with the allocation of decision rights. How decisions come about also affects implementation if workers have reciprocal fairness concerns. Our experimental evidence demonstrates that the possibility to sabotage implementation leads to more delegation, but only if workers have high costs of obstructing informed decisions. We further find that the allocation of authority as such affects implementation

    Wage inequality and team production: An experimental analysis

    Full text link
    Numerous survey studies report that human resource managers curb wage inequality with the intent to avoid detrimental effects on workers’ morale. However, there exists little controlled empirical evidence demonstrating that horizontal social comparisons and wage inequality have adverse effects on worker behavior. In this paper, we present data from a laboratory experiment that studies the impact of wage inequality on participation and effort choices in team production. Overall, we do not find evidence that wage inequality has a significant impact on either participation or effort choices

    Competition, Cooperation, and Corporate Culture

    Full text link
    Teamwork and cooperation between workers can be of substantial value to a firm, yet the level of worker cooperation often varies between individual firms. We show that these differences can be the result of labor market competition if workers have heterogeneous preferences and preferences are private information. In our model there are two types of workers: selfish workers who only respond to monetary incentives, and conditionally cooperative workers who might voluntarily provide team work if their co-workers do the same. We show that there is no pooling in equilibrium, and that workers self-select into firms that differ in their incentives as well as their resulting level of team work. Our model can explain why firms develop different corporate cultures in an ex-ante symmetric environment. Moreover, the results show that, contrary to first intuition, labor market competition does not destroy but may indeed foster within-firm cooperation

    Heterogeneous social preferences, screening, and employment contracts

    No full text
    This paper studies a monopsonistic firm's optimal employment contracts if workers have private information on both their propensity for social comparisons and their ability. Employees of the firm are taken to form their own distinct reference group. It is shown that screening workers with equal ability according to their social preferences is then not possible within the firm. In consequence, the firm distorts production by its employees with low ability, or it excludes workers with low ability and a high propensity for social comparisons. This highlights that firms can use both contractual and organizational measures to reduce the costs arising from workers' social preferences. Further, information on workers' social preferences reduces the latter's impact on employment contracts without changing it qualitatively. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

    I care what you think: social image concerns and the strategic revelation of past pro‑social behavior

    No full text
    This article studies whether people want to control what information on their own past pro-social behavior is revealed to others. Participants are assigned a color that depends on their past pro-social behavior. They can spend money to manipulate the probability with which their color is revealed to another participant. The data show that participants are more likely to reveal colors with more favorable informational content. This pattern is not found in a control treatment in which colors are randomly assigned, thus revealing nothing about past pro-social behavior. Regression analysis confrms these fndings, also when controlling for past pro-social behavior. These results complement the existing empirical evidence, confrming that people strategically and, therefore, consciously manipulate their social image

    Motivated beliefs and the elderly's compliance with COVID-19 measures

    No full text
    Although the elderly are more vulnerable to COVID-19, the empirical evidence suggests that they do not behave more cautiously in the pandemic than younger individuals. This theoretical model argues that some individuals might not comply with the COVID-19 measures to reassure themselves that they are not vulnerable, and that the incentives for such self-signaling can be stronger for the elderly. The results suggest that communication strategies emphasizing the dangers of COVID-19 could backfire and reduce compliance among the elderly

    Bargaining under incomplete information, fairness, and the hold-up problem

    No full text
    In the hold-up problem incomplete contracts cause the proceeds of relationship-specific investments to be allocated by bargaining. This paper investigates the corresponding investment incentives if individuals have heterogeneous fairness preferences. Individual preferences are taken to be private information. Investments can then signal preferences and thereby influence beliefs and bargaining behavior. In consequence, individuals might choose high investments in order not to signal information that is unfavorable in the ensuing bargaining.Hold-up Relationship-specific investments Fairness Reciprocity Asymmetric information Signalling

    Social Preferences, Trust, and Communication when the Truth Hurts

    Full text link
    We investigate how heterogeneous social preferences affect the communication of painful information in social relationships. We characterize the existence conditions for a pooling equilibrium in which individuals conceal painful information because revealing the latter would signal that they are selfish, thereby leading to a loss of trust. We also find that compassionate individuals may then be more tempted to reveal bad news than selfish individuals because they benefit less from an intact social relationship. Moreover, there may be multiple equilibria with different degrees of information disclosure and standard equilibrium refinements have no bite. Coordination on an inefficient equilibrium could therefore lead to severe information frictions, even if the pain of receiving bad news is quite small
    corecore