The prevailing labor market models assume that minimum wages do not affect the labor supply schedule. We challenge this view in this paper by showing experimentally that minimum wages have significant and lasting effects on subjects’ reservation wages. The temporary introduction of a minimum...

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...

Recently developed models of fairness can explain a wide variety of seemingly contradictory facts. The most controversial and yet unresolved issue in the modeling of fairness preferences concerns the behavioral relevance of fairness intentions. Intuitively, fairness intentions seem to play an...

We investigate to what extent contribution decisions to a public good depend on the contributions of others. We employ a novel experimental technique that allows us to elicit people's willingness to be conditionally cooperative, i.e., to contribute more to the public good the more the other...

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 a recent paper Engelmann and Strobl claim that a combination of a preference for efficiency and a Rawlsian motive for helping the least well-off is far more important than inequity aversion. Here we show that the relevance of the efficiency motive is largely restricted to students of...

Money illusion means that people behave differently when the same objective situation is represented in nominal or in real terms. To examine the behavioral impact of money illusion we studied the adjustment process of nominal prices after a fully anticipated negative nominal shock in an...

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...

This paper presents an experimental examination of the Falkinger (1996) mechanism or overcoming the free-rider problem. The basic idea of the mechanism is that deviations from the mean contribution to the public good are taxed and subsidized. The mechanism has attractive properties because (i)...

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...