There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish...

We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting...

This paper shows that reciprocity has powerful implications for many economic domains. It is an important determinant in the enforcement of contracts and social norms and enhances the possibilities of collective action greatly. Reciprocity may render the provision of explicit incentive...

One of the most basic questions in economics concerns the effects of competition on market prices. We show that the neglect of both fairness concerns and decision errors prevents a satisfactory understanding of how competition affects prices. We conducted experiments which demonstrate that the...

A substantial number of people exhibit social preferences, which means they are not solely motivated by material self-interest but also care positively or negatively for the material payoffs of relevant reference agents. We show empirically that economists fail to understand fundamental economic...

We study the impact of reputational incentives in markets characterized by moral hazard problems. Social preferences have been shown to enhance contract enforcement in these markets, while at the same time generating considerable wage and price rigidity. Reputation powerfully amplifies the...

In recent years a large number of experimental studies have documented the existence of strong reciprocity among humans. Strong reciprocity means that people willingly repay gifts and punish the violation of cooperation and fairness norms even in anonymous one-shot encounters with genetically...

We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that...

This paper reports the results of a series of competitive labour market experiments in which subjects have the possibility to reciprocate favours. In the high stake condition subjects earned between two and three times their monthly income during the experiment. In the normal stake condition the...

This paper examines how the presence of a non-negligible fraction of reciprocally fair actors changes the provision of incentives through contracts. We provide experimental evidence that principals have a strong preference for less complete contracts although the standard self-interest model...