Efficient Contracts for Digital Content

This paper analyses efficient contracts for digital content, focusing on the music industry. It contributes to the quest for an efficient intellectual property rights environment for information goods. Moreover, it adds an interesting application to the field of behavioural economics. The model is set in a contract theory framework with the copyright holder being the principal and a consumer the agent. We offer three contract cases for analysis: strong copy protection, a strategically low price and voluntary reciprocal contributions. Insights from the economics of information and behavioural economics - information goods have public goods properties; social preferences are significant among individuals - are applied to examine the value of a strict copyright enforcement in the digital age. We find that endogenous incomplete contracts based on fair, reciprocal behaviour may achieve a first-best allocation of information goods, while complete contracts are limited to second-best results.internet, music industry, social preferences, reciprocity, moral hazard, file sharing

Why Consumers Pay Voluntarily: Evidence from Online Music

Customers at the online music label Magnatune can pay what they want for albums, as long as the payment is within a given price range ($5-$18). Magnatune recommends to pay $8, and on average customers paid$8.20 (Regner and Barria, 2009). We ran an online survey and collected responses from 227 frequent Magnatune customers to gain insights about the underlying motivations to pay more than necessary. We control for individual response- and sample selection-bias, and find that reciprocity and guilt appear to be the major drivers for generous voluntary payments. Being inclined to follow social norms is a positive determinant for payments around the recommended price.social preferences, other-regarding behaviour, music industry, reciprocity, guilt, social norms, altruism, fairness, social-image concerns, survey

Why Voluntary Contributions? Google Answers

We study the pricing and tipping behaviour of users of the online service `Google Answers'. While they set a price for the answer to their question ex ante, they can additionally give a tip to the researcher ex post. We develop a model that is based on reciprocal theories of social preferences pioneered by Rabin (1993) and extended by Dufwenberg and Kirchsteiger (2004). The predictions of our model are empirically tested with the field data we obtained. The reasons for leaving a tip are analysed. A significant amount of users are motivated by social preferences. We also find strong support for reputation concerns. Moreover, researchers appear to adjust their effort based on the user's previous tipping behaviour. We conclude that an endogenous incomplete contracts design encourages people to contribute voluntarily. This is motivated by reciprocity when people are socially minded, but also generally by strategic behaviour to build up a good reputation. Efficiency is increased when contracts are left open deliberately as high effort is sustained.social preferences, reciprocity, moral hazard, reputation, internet

Corporate Social Responsibility in the work place - Experimental evidence on CSR from a gift-exchange game

We analyze the effect of investments in corporate social responsibility (CSR) on workers' motivation. In our experiment, a gift exchange game variant, CSR is captured by donating a certain share of profits to a charity. We are testing for CSR effects by varying the possible share of profits given away. Additionally, we investigate the effect of a mission match, i.e., a worker prefering the same charity the firm is actually donating to. Our results show that on average workers reciprocate investments into CSR with increased effort. A mission match does result in higher effort, but only when investment into CSR is high.Corporate Social Responsibility, gift-exchange game, experiment, labor market, incentives, moral hazard, principal agent

A note on the relationship between television viewing and individual happiness

In a recently published article, Bruni and Stanca (2008) suggest that television viewing has a negative impact on life satisfaction. In this note we argue that the empirical approach they use (an approach that omits the main effect of TV viewing in life satisfaction) is problematic. We estimate a microeconomic life satisfaction function and find mixed support for the claim that television viewing in general has a negative impact on individual happiness. Using a large cross-country comparison we find that there is a substantial heterogeneity across countries, which needs to be taken into account when concluding about television's effect on life satisfaction.Relational goods, Subjective well-being, TV consumption, Happiness

Digital Technology and the Allocation of Ownership in the Music Industry

We apply the property rights theory of Grossman-Hart-Moore in the music industry and study the optimal allocation of copyright between the artists who create music and the labels who promote and distribute it. Digital technology opens up a role for new intermediaries. We find that entry of online platforms occurs only if they are sufficiently more productive in distribution than the incumbent label. Furthermore, entry leads to a change in bargaining positions and it can become optimal for the copyright to be shifted from the label to the artist. (Updated from working paper 04/096)property rights theory, copyright, internet, music industry

Other-regarding behaviour: Testing guilt- and reciprocity-based models

We analyse two types of belief-dependant models of social preferences: guilt aversion and reciprocity. In particular, we test the relevance of their input variables (second-order beliefs and general dispositions for guilt/reciprocity). The data confirm the predictions of belief-dependant models. Both second-order beliefs and a participant's sensitivity to guilt/reciprocity are relevant for the decisions taken. Second-order beliefs appear to have an inverse U-shaped effect on the extent of kind behaviour.social preferences, other-regarding behaviour, belief-dependent models, experiments, trust game, guilt aversion, beliefs, psychological game theory, emotions, reciprocity

What's behind image? Toward a better understanding of image-driven behavior

Our experimental design systematically varies image concerns in a dictator/trust game. In comparison to the baseline, we either decrease the role of self-image concerns (by providing an excuse for selfish behavior) or increase the role of social-image concerns (by conveying the transfer choice to a third person). In this set up, we analyze the underlying processes that motivate subjects to give less/more. Controlling for distributional preferences and expectations, our results indicate that moral emotions (guilt and shame) are a significant determinant of pro-social behavior. The disposition to guilt explains giving in the baseline, while it does not when an excuse for selfish behavior exists. Subjects' disposition to shame is correlated to giving when their choice is public and they can be identified. JEL Classifications: C72, C91, D03, D8