This paper reports a 3-phase experiment on a stylized labor market. In the first
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
facThis paper reports a 3-phase experiment on a stylized labor market. In the first
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 offering agents a contract from a fixed 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 effort game induced
by the chosen contract. We find that (heterogeneous) social preferences are significant
determinants of choices in all phases of the experiment. Since the available contracts
display a trade-off 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.[+][-]