Hoppe, Eva I. and Schmitz, Patrick W. (2013): Contracting under Incomplete Information and Social Preferences: An Experimental Study.
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Abstract
Principal-agent models in which the agent has access to private information before a contract is signed are a cornerstone of contract theory. We have conducted an experiment with 720 participants to explore whether the theoretical insights are reflected by the behavior of subjects in the laboratory and to what extent deviations from standard theory can be explained by social preferences. Investigating settings with both exogenous and endogenous information structures, we find that agency theory is indeed useful to qualitatively predict how variations in the degree of uncertainty affect subjects' behavior. Regarding the quantitative deviations from standard predictions, our analysis based on several control treatments and quantal response estimations shows that agents' behavior can be explained by social preferences that are less pronounced than in conventional ultimatum games. Principals' own social preferences are not an important determinant of their behavior. However, when the principals make contract offers, they anticipate that social preferences affect agents' behavior.
Item Type: | MPRA Paper |
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Original Title: | Contracting under Incomplete Information and Social Preferences: An Experimental Study |
Language: | English |
Keywords: | Agency theory; Adverse selection; Information gathering; Ultimatum game; Social preferences; Experiment |
Subjects: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior |
Item ID: | 44240 |
Depositing User: | Patrick W. Schmitz |
Date Deposited: | 06 Feb 2013 13:49 |
Last Modified: | 26 Sep 2019 15:39 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/44240 |