Hoppe, Eva I. and Schmitz, Patrick W. (2018). Hidden action and outcome contractibility: An experimental test of moral hazard theory. Games Econ. Behav., 109. S. 544 - 565. SAN DIEGO: ACADEMIC PRESS INC ELSEVIER SCIENCE. ISSN 1090-2473

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Abstract

In a laboratory experiment with 754 participants, we study the canonical one-shot moral hazard problem, comparing treatments with unobservable effort to benchmark treatments with verifiable effort. In our experiment, the players endogenously negotiate contracts. In line with contract theory, the contractibility of the outcome plays a crucial role when effort is a hidden action. If the outcome is contractible, most players overcome the hidden action problem by agreeing on incentive-compatible contracts. Communication is helpful, since it may reduce strategic uncertainty. If the outcome is non-contractible, in most cases low effort is chosen whenever effort is a hidden action. However, communication leads the players to agree on larger wages and substantially mitigates the underprovision of effort. (C) 2018 The Author(s). Published by Elsevier Inc.

Item Type: Journal Article
Creators:
CreatorsEmailORCIDORCID Put Code
Hoppe, Eva I.UNSPECIFIEDUNSPECIFIEDUNSPECIFIED
Schmitz, Patrick W.UNSPECIFIEDUNSPECIFIEDUNSPECIFIED
URN: urn:nbn:de:hbz:38-187380
DOI: 10.1016/j.geb.2018.02.006
Journal or Publication Title: Games Econ. Behav.
Volume: 109
Page Range: S. 544 - 565
Date: 2018
Publisher: ACADEMIC PRESS INC ELSEVIER SCIENCE
Place of Publication: SAN DIEGO
ISSN: 1090-2473
Language: English
Faculty: Unspecified
Divisions: Unspecified
Subjects: no entry
Uncontrolled Keywords:
KeywordsLanguage
PIECE RATES; FIXED WAGES; MARKET; INFORMATION; PROMISES; COMMUNICATION; INCENTIVES; AGREEMENTMultiple languages
EconomicsMultiple languages
Refereed: Yes
URI: http://kups.ub.uni-koeln.de/id/eprint/18738

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