Social Preferences and Strategic UncertaintyAn Experiment on Markets and Contracts

Resumen

This paper reports a 3-phase experiment on a stylized labor market. In the Þrst two phases, agents face simple games, which we use to estimate subjects� social and reciprocity concerns, together with their beliefs. In the last phase, four principals, who face four teams of two agents, compete by o ering agents a contract from a Þxed menu. Then, each agent selects one of the available contracts (i.e. he �chooses to work� for a principal). Production is determined by the outcome of a simple e ort game induced by the chosen contract. We Þnd that (heterogeneous) social preferences are signiÞcant determinants of choices in all phases of the experiment. Since the available contracts display a trade-o between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences.