Discussion Papers 745

2 The model

Finally, we point out that our experiments are based on games that have a social optimum in
the interior of the strategy space. This is different from the typical experiment on public-
goods provision where the efficient solution lies at the upper end of the strategy space. It has
been neglected in the literature that this design issue renders the observation of an aggregate
outcome close to the efficient solution almost impossible.

In Section 2, we present the model and its theoretical solutions. Section 3 develops behavioral
predictions. Section 4 describes the experimental design. In Sections 5 and 6, we present the
experimental results. Section 7 concludes the article.

2 The model

Our experiments with voluntary choice of the remuneration mode are based on the effort
game presented in Section 2.1. This game has a unique subgame-perfect equilibrium (Section
2.2) that is different from the joint profit-maximizing solution (Section 2.3).

2.1 The effort game

Consider a game with two players i = 1, 2 and two decision stages. Let us start by describing
the second decision stage in which each of the two players chooses an effort level, before we
consider the first stage in which the players decide on their remuneration mode.

In the second decision stage, each player i knows the remuneration mode and independently
chooses an effort level, ei, where ei ∈ [0,100]. Effort is costly. Player i's cost function Ci de-
pends on his individual effort ei and a constant ki, and is quadratic:

Ci= ki ei² .

In the first decision stage, each player i independently chooses between private remuneration
or team remuneration. If both players choose team remuneration, team remuneration is ap-
plied: each player i is paid, at the end of the second decision stage, based on both players'
average effort multiplied by a constant, t. The team remuneration Ti for each player i is

f e₁ + e 2 ^

Ti = 11 ⅛²∙ I.

i < 2 √

<<   8   9   10   11   12   13   14   >>

More intriguing information