Emotional Hazard and Real Effort in a Power-to-Take Game

This paper experimentally investigates whether agents behave differently if their own earnings are at stake (effort experiment) or a budget that is provided to them like a sort of manna from heaven (no-effort experiment) . We use the so-called power-to-take game, employed by Bosman & Van Winden (1999) to study the impact of emotions on economic behavior. Players are randomly divided into pairs consisting of a take authority and responder. Both players in each pair have an endowment. <BR> The game consists of two stages. In the first stage, the take authority decides how much of the endowment of the responder that is left after the second stage will be transferred to the take authority (the so-called take rate). In the second stage, the responder can punish the take authority by destroying (part of) his or her endowment.<BR> Our main findings are the following: <OL> <LI>responders destroy more often and a greater amount on aggregate in the no-effort experiment; <LI>responders more often choose an intermediate amount of destruction in the no-effort experiment; <LI>the behavior of take authorities does not depend on effort; <LI>responders expect lower take rates in the no-effort experiment; <LI>in addition to the take rate, responders' expectations of the take rate have a significant effect on the probability of punishment in both the effort and no-effort experiment. We explain these results with the help of emotion theory. </OL>