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Fair Offers in a Repeated Principal-Agent Relationship with Hidden Actions

Author

Listed:
  • Francois Cochard

    (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

  • Marc M. Willinger

    (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

Abstract

We test a repeated principal–agent relationship with hidden actions in the laboratory. At each period, the principal offers payments to the agent in order to induce him to provide the high effort level. The agent can accept or reject the offer; if he accepts it, he can choose the high or the low effort level. We observe that offered payments are higher than predicted by the subgame-perfect equilibrium, and higher in the partners' than in the strangers' design. Furthermore, agents strategically reject inequitable offers in early rounds in order to induce principals to increase payments in the subsequent rounds.

Suggested Citation

  • Francois Cochard & Marc M. Willinger, 2005. "Fair Offers in a Repeated Principal-Agent Relationship with Hidden Actions," Post-Print hal-01351562, HAL.
    • Handle: RePEc:hal:journl:hal-01351562
    DOI: 10.1111/j.0013-0427.2005.00412.x
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    Cited by:

    1. repec:dgr:kubcen:200922 is not listed on IDEAS
    2. repec:tiu:tiucen:200833 is not listed on IDEAS
    3. Lacomba, Juan A. & Lagos, Francisco & Reuben, Ernesto & van Winden, Frans, 2017. "Decisiveness, peace, and inequality in games of conflict," Journal of Economic Psychology, Elsevier, vol. 63(C), pages 216-229.
    4. Ennasri, Ahmed & Willinger, Marc, 2014. "Incentives and managerial effort under competitive pressure: An experiment," Research in Economics, Elsevier, vol. 68(4), pages 324-337.
    5. Erlei Mathias & Schenk-Mathes Heike, 2017. "Bounded Rationality in Principal-Agent Relationships," German Economic Review, De Gruyter, vol. 18(4), pages 411-443, December.
    6. Reuben, E. & Suetens, S., 2008. "Conditional Cooperation : Disentangling Strategic from Non-Strategic Motivations," Other publications TiSEM a44873ae-177f-4f66-9a9c-9, Tilburg University, School of Economics and Management.
    7. Ernesto Reuben & Sigrid Suetens, 2012. "Revisiting strategic versus non-strategic cooperation," Experimental Economics, Springer;Economic Science Association, vol. 15(1), pages 24-43, March.
    8. repec:tiu:tiucen:200922 is not listed on IDEAS

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