Strategic delegation in experimental duopolies with endogenous incentive contracts

Often, deviations of firm behavior from profit maximization are the result of managerial incentive contracts. We study the endogenous emergence of incentive contracts used by firm owners to delegate the strategic decisions of the firm. These contracts are linear combinations either of own firm's profits and revenues, or own and rival firms' profits. A two- and three-stage game are studied depending on whether owners commit or not to a certain contract type before setting the managerial incentives and the level of output to produce in the market. We report experimental results which confirm some of the predictions of the model, especially those concerning owners' preference for relative performance incentives over profit-revenue contracts. Neglected behavioral aspects are proposed as possible explanation of some divergence between the theory and the experimental evidence, more specifically the relation between contract terms and managers' output choicesExperimental economics; Oligopoly theory; Managerial delegation; Endogenous contracts.

An experiment on prisoner's dilemma with confirmed proposals

We suggest an alternating proposals protocol with a confirmation stage as a way of solving a Prisoner’s Dilemma game. We interpret players’ proposals and (no) confirmation of outcomes of the game as a tacit communication device. The protocol leads to unprecedented high levels of cooperation in the laboratory. Assigning the power of confirmation to one of the two players alone, rather than alternating the role of a leader significantly increases the probability of cooperation in the first bargaining period. We interpret pre-agreement strategies as tacit messages on players’ willingness to cooperate and as signals pursuing individualistic objectives like publicizing one’s bargaining abilities or eliciting those of the opponent