Abstract
Drawing on the proposer-responder game examined by Andreoni, Harbaugh, and Vesterlund (2003), I experimentally test four variations of a principal-agent relationship with fixed pay and real effort. Depending on the treatment, the principal can voluntarily, but at her own expense, (1) only reward her agent, (2) only punish her agent, (3) either reward or punish her agent, or (4) neither reward nor punish her agent. Compared to Andreoni et al., I find substantially higher investments in reward, about the same expenses for punishment, and no significant difference among the four treatments regarding output levels. I attribute these findings to the real effort aspect of the experimental design.
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I would like to thank two anonymous referees, and Roland Kirstein, Manfred Konigstein, and especially Bernd Schauenberg for their many useful comments. A part of this research was done while enjoying the hospitality of the University of California in Santa Barbara. I am also indebted to the Deutsche Forschungsgemeinschaft for providing the financial means to run the experiments.
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Kirstein, A. Bonus and Malus in Principal-Agent Relations with Fixed Pay and Real Effort. Schmalenbach Bus Rev 60, 280–303 (2008). https://doi.org/10.1007/BF03396772
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DOI: https://doi.org/10.1007/BF03396772