Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model

2011 ◽  
Vol 101 (2) ◽  
pp. 819-843 ◽  
Author(s):  
Steffen Huck ◽  
Andrew J Seltzer ◽  
Brian Wallace
Keyword(s):  
Experimental Test ◽  
Social Preferences ◽  
Monetary Incentives ◽  
Labor Contracts ◽  
Deferred Compensation ◽  
Ex Ante

This paper provides the first experimental test of Edward Lazear's (1979) model of deferred compensation. We examine the relation ship between firms' wage offers and workers' effort supply in a multi-period environment. If firms can ex ante commit to a wage schedule with deferred compensation, workers should respond by supplying sufficient effort to avoid dismissal. We contrast this full-commitment case to controls with no commitment and computer-generated wages in order to examine the roles of monetary incentives, social preferences, and reciprocity. Finally, we examine a setup without formal commitment, but where firms can build a reputation for paying deferred wages. (JEL D86, J22, J31, J33, J41)

scholarly journals Individual goals and social preferences in operational decisions

2019 ◽  
Vol 39 (1) ◽  
pp. 116-137 ◽  
Author(s):  
Nienke Hofstra ◽  
Wout Dullaert ◽  
Sander De Leeuw ◽  
Eirini Spiliotopoulou
Keyword(s):  
Decision Making ◽  
Social Preferences ◽  
Operational Planning ◽  
Future Research ◽  
Monetary Incentives ◽  
Content Type ◽  
Planning Decisions ◽  
Multiple Data ◽  
Human Decision ◽  
Insight Into

Purpose The purpose of this paper is to develop propositions explaining the influence of individual goals and social preferences on human decision making in transport planning. The aim is to understand which individual goals and social preferences planners pursue and how these influence planners’ decisions. Design/methodology/approach Propositions are developed based on investigation of decision making of transport planners in a Dutch logistics service provider using multiple data collection methods. Findings The study shows how decision making of transport planners is motivated by individual goals as well as social preferences for reciprocity and group identity. Research limitations/implications Further research including transaction data analysis is needed to triangulate findings and to strengthen conclusions. Propositions are developed to be tested in future research. Practical implications Results suggest that efforts to guide planners in their decision making should go beyond traditional (monetary) incentives and consider their individual goals and social preferences. Moreover, this study provides insight into why transport planners deviate from desired behaviour. Originality/value While individual decision making plays an essential role in operational planning, the factors influencing how individuals make operational planning decisions are not fully understood.

scholarly journals A Model of Focusing in Economic Choice*

2012 ◽  
Vol 128 (1) ◽  
pp. 53-104 ◽  
Author(s):  
Botond Kőszegi ◽  
Adam Szeidl
Keyword(s):  
Intertemporal Choice ◽  
Hyperbolic Discounting ◽  
Time Inconsistency ◽  
Monetary Incentives ◽  
Present Bias ◽  
Advantages And Disadvantages ◽  
Economic Choice ◽  
Lifestyle Choices ◽  
Ex Ante ◽  
A Current

Abstract We present a generally applicable theory of focusing based on the hypothesis that a person focuses more on, and hence overweights, attributes in which her options differ more. Our model predicts that the decision maker is too prone to choose options with concentrated advantages relative to alternatives, but maximizes utility when the advantages and disadvantages of alternatives are equally concentrated. Applying our model to intertemporal choice, these results predict that a person exhibits present bias and time inconsistency when—such as in lifestyle choices and other widely invoked applications of hyperbolic discounting—the future effect of a current decision is distributed over many dates, and the effects of multiple decisions accumulate. But unlike in previous models, in our theory (1) present bias is lower when the costs of current misbehavior are less dispersed, helping explain why people respond more to monetary incentives than to health concerns in harmful consumption; and (2) time inconsistency is lower when a person commits to fewer decisions with accumulating effects in her ex ante choice. In addition, a person does not fully maximize welfare even when making decisions ex ante: (3) she commits to too much of an activity—for example, exercise or work—that is beneficial overall; and (4) makes “future-biased” commitments when—such as in preparing for a big event—the benefit of many periods’ effort is concentrated in a single goal.

Dictating the Risk: Experimental Evidence on Giving in Risky Environments: Reply

2016 ◽  
Vol 106 (3) ◽  
pp. 840-842 ◽  
Author(s):  
J. Michelle Brock ◽  
Andreas Lange ◽  
Erkut Y. Ozbay
Keyword(s):  
Experimental Evidence ◽  
Social Preference ◽  
Social Preferences ◽  
Preference Model ◽  
Ex Post ◽  
Ex Ante ◽  
Fairness Concerns

In Brock, Lange, and Ozbay (2013), we experimentally investigate social preferences under risk. One of our conclusions is that a social preference model incorporating both ex ante and ex post fairness concerns may best describe behavior. Krawczyk and Le Lec (2016 ) argue that ex ante comparisons alone may account for our data. We address their points in this reply. (JEL C72, D63, D64, D81)

scholarly journals Gender differences in overplacement in familiar and unfamiliar tasks: Far more similarities

2020 ◽  
Author(s):  
Pablo Branas-Garza ◽  
Ernesto Mesa-Vázquez ◽  
Noelia Rivera-Garrido
Keyword(s):  
Gender Differences ◽  
Prior Knowledge ◽  
Monetary Incentives ◽  
Entire Sample ◽  
Actual Performance ◽  
Video Presentation ◽  
Performance Predictions ◽  
Ex Ante ◽  
Opposite Sex ◽  
Raven's Progressive Matrices

This paper explores gender differences in overplacement in two independent and unrelated tasks. The first measures performance via Raven’s Progressive Matrices test, the second in a video presentation assessed by external judges. While in the first task, we expected participants to have prior knowledge about their own experience in similar tasks, we did not expect them to have experience of the second task. Therefore, the latter seems an ideal environment in which to test overplacement given that participants had no ex-ante information with which to make performance predictions. In both cases, participants received monetary incentives depending on the accuracy of their predictions regarding their own performance compared to other participants. We analyzed overplacement – whether participants expect to outperform their actual performance compared to the entire sample – and in/out-group overplacement– whether the participants expect to outperform participants of the same and the opposite sex. Results show that there are no gender differences in any task except in Raven’s Progressive Matrices for out-group overplacement.

scholarly journals How social preferences provide effort incentives in situations of financial support

PLoS ONE ◽  
2021 ◽  
Vol 16 (1) ◽  
pp. e0244972
Author(s):  
Christian Knoller ◽  
Stefan Neuß ◽  
Richard Peter
Keyword(s):  
Moral Hazard ◽  
Laboratory Experiment ◽  
Strong Evidence ◽  
Financial Support ◽  
Social Preferences ◽  
Monetary Incentives ◽  
Material Efficiency ◽  
Preventive Effort ◽  
Effort Provision ◽  
Level Effect

When people anticipate financial support, they may reduce preventive effort. We conjecture that the source of financial support can mitigate this moral hazard effect due to social preferences. We compare effort choices when another individual voluntarily provides financial support against effort choices under purely monetary incentives. When financial support is provided voluntarily by another individual, we expect recipients to exert more effort to avoid bad outcomes (level effect) and to reduce effort provision to a lesser degree as financial support becomes more generous (sensitivity effect). We conducted an incentivized laboratory experiment and find some evidence for the level effect and strong evidence for the sensitivity effect. This leads to significant gains in material efficiency with expected wealth being 5.5% higher and 37.3% less volatile.

scholarly journals Intentions-Based Reciprocity to Monetary and Non-Monetary Gifts

Games ◽  
2018 ◽  
Vol 9 (4) ◽  
pp. 74 ◽  
Author(s):  
Matthew Chao
Keyword(s):  
Real World ◽  
Laboratory Tests ◽  
Social Preference ◽  
Social Preferences ◽  
Dictator Game ◽  
Monetary Incentives ◽  
Gift Giving ◽  
Marketing Literature ◽  
Real World Applications ◽  
Preference Models

Social preference models emphasize that perceived intentions motivate reciprocity. However, laboratory tests of this theory typically manipulate perceived intentions through changes in wealth resulting from a sacrifice in pay by another. There is little evidence on whether reciprocity occurs in response to perceived intentions alone, independent of concurrent changes in pay and giver sacrifice (and any associated guilt from that sacrifice). This paper addresses this gap in the literature by implementing a modified dictator game where gifts to dictators are possible, but where gift transactions are also stochastically prevented by nature. This leads to instances of observed gift-giving intentions that yield no sacrifice or change in outcomes. In addition, this study uses both monetary and non-monetary gifts; previous studies typically use only monetary incentives, even though real-world applications of this literature often involve non-monetary incentives such as business or marketing gifts. The results show that on average, dictators reciprocated strongly to just the intention to give a gift, and they also reciprocated similarly to both monetary and non-monetary gifts. These results are consistent with intentions-based models of social preferences and with much of the marketing literature on business gifts.

scholarly journals Heterogeneity in Farmers’ Social Preferences and the Design of Green Payment Schemes

2021 ◽  
Vol 78 (2) ◽  
pp. 201-226
Author(s):  
Prasenjit Banerjee ◽  
Rupayan Pal ◽  
Ada Wossink ◽  
James Asher
Keyword(s):  
Choice Experiment ◽  
Lower Cost ◽  
Social Preferences ◽  
Social Reward ◽  
Monetary Incentives ◽  
Private Land ◽  
Social Image ◽  
Biodiversity Protection ◽  
Symmetric Information ◽  
Payment Schemes

AbstractWe examine how social preferences affect the workings of voluntary green payment schemes and show that a regulator could use facilitation services along with a social reward to generate better ecological outcome at less cost by exploiting a farmer’s social preferences to gain a green social-image/reputation. To motivate our model, we first present the results of an incentivized elicitation survey in Scotland which shows that there is a social norm of biodiversity protection on private land among farmers. Moreover, the results of a discrete choice experiment reveal that farmers are willing to give up economic rents for more publicity of their conservation activities; this confirms the relevance of reputational gain in the context of green payment schemes. Our model assumes two types of farmers, green and brown, with a green farmer taking more biodiversity protection actions than a brown farmer. We design a menu of contracts that offers both monetary incentives and non-monetary incentives (a facilitation service with social reward) to induce both type of farmers to join the scheme and to exert first-best levels (i.e., symmetric information levels) of action. Results show that under asymmetric information the regulator can implement the symmetric information equilibrium levels of biodiversity protection actions with only non-monetary incentives for the green farmer and only monetary incentives for the brown farmer. This implies that a regulator can ensure better environmental outcomes, at a lower cost, by exploiting farmers’ social preferences and by offering non-monetary incentives.

Partial Unraveling and Strategic Contract Timing

2021 ◽  
Author(s):  
Liang Guo
Keyword(s):  
Information Transmission ◽  
Private Information ◽  
Social Preferences ◽  
Wholesale Price ◽  
Bilateral Bargaining ◽  
Vertical Relationships ◽  
Bilateral Monopoly ◽  
Ex Ante

Renegotiations and last-minute contracting are prevalent in many vertical relationships. Information transmission between firms and buyers can be imperfect as well. In this paper we present a theory to explicate how early/delayed contracting over wholesale prices, and partial unraveling of private information, can sustain each other endogenously in a channel setting with bilateral monopoly. Should the wholesale price be predetermined, the downstream manufacturer would be compelled to fully disclose all private information. By contrast, the to-be-negotiated wholesale price can be potentially affected by manufacturer disclosure or concealment. This can represent a countervailing force for equilibrium revelation to be imperfect, even when disclosure is costless. Thus partial unraveling may emerge if and only if no enforceable contract has been signed (i.e., contracting is delayed). Conversely, partial unraveling can endogenously influence ex ante preferences for contract timing. Therefore, contracting may be deliberately delayed even without learning/cost considerations. Moreover, equilibrium contract timing can be socially too early to alleviate channel distortions, and bilateral bargaining can align private and social preferences for delayed contracting. This paper was accepted by Dmitri Kuksov, marketing.

The Effect of Social Preferences on Sales and Operations Planning

2021 ◽  
Author(s):  
Felix Papier ◽  
Ulrich W. Thonemann
Keyword(s):  
Financial Incentives ◽  
Social Preference ◽  
Social Preferences ◽  
Inequality Aversion ◽  
Monetary Incentives ◽  
Competitive Pressure ◽  
Operations Planning ◽  
Demand Planning ◽  
Planning Processes

Sales and operations planning processes are used to align production quantities and customer demand. Two key activities of these processes are demand planning and production planning, which are often assigned to individuals in different departments. In “The Effect of Social Preferences on Sales and Operations Planning,” Papier and Thonemann analyze the role of social preferences (altruism, inequality aversion, and competitive pressure) and monetary incentives in motivating demand planners to invest effort in forecasting that benefits the production planners. Their results indicate that social preferences can be used to incentivize demand planners to invest effort and that this effect is anticipated by production planners. The resulting more accurate demand forecasts and adapted production quantities result in higher company profit. They also provide an optimization model for optimally allocating investments to financial incentives and social preference building.

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