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Title:The roles of incentives and voluntary cooperation for contractual compliance PDF Logo
Authors:Gächter, Simon
Kessler, Esther
Königstein, Manfred
Issue Date:2011
Series/Report no.:CeDEx discussion paper series 2011-06
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.
Subjects:principal-agent games
gift-exchange experiments
incomplete contracts, explicit incentives
implicit incentives
repeated games
separability
experiments
JEL:C70
C90
Document Type:Working Paper
Appears in Collections:CeDEx Discussion Paper Series, The University of Nottingham

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