When No Bad Deed Goes Punished: A Relational Contracting Experiment in Ghana
September 16, 2015Poverty and Applied Microeconomics Seminar Series

Marcel Fafchamps will present the results of recent research.

Speaker: Marcel Fafchamps is a Senior Fellow at Stanford University. More »

Abstract: We study relational contracting patterns in Ghanaian labour markets by conducting a gift-exchange game lab experiment, in which subjects interact in a principal-agent setting as workers or employers. In this game, employers make wage offers to workers, who can then choose to accept or reject this offer and, after accepting and being paid, what effort to exert. The employers and workers interact repeatedly over several periods. While in earlier experiments in developed countries relational contracting, in which cooperation is sustained by a threat of punishment of non-cooperative behaviour, emerged naturally (e.g. Brown et al., 2004, 2012), we do not find evidence for this. In particular, we do not find conditional reciprocity on behalf of the employers: employers in our experiment do not punish low effort provision.  As a result, employers fail to discipline a subgroup of “selfish” workers, resulting in a low average effort and low and often negative employers’ earnings. Set identification of Fehr-Schmidt preferences of the workers shows that the share of “selfish” workers in our experiment is not substantially different from earlier experiments. Introducing competition for workers or a reputation mechanism does not significantly improve workers’ effort.

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Last Updated: Sep 15, 2015

The Poverty and Applied Micro Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers in applied microeconomics from the fields of poverty, human development and public service delivery, agriculture and rural development, political economy, behavioral economics, private sector development, and a range of other fields to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Event Details
  • Date: September 16, 2015
  • Location: MC3-570
  • Time: 12:30 - 2:00 PM
  • CONTACT: Anna Bonfield

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