Essays on behavioral and organizational economics an experimental approach

3.3 Methods and Design of the Experiment 67 Behaviour 3.4.5 The Impact of the Number of Third Party Observers on Dictator’s 84 Behavior An Experimental Investigation Procedures on Soci

ESSAYS ON BEHAVIORAL AND ORGANIZATIONAL ECONOMICS:

AN EXPERIMENTAL APPROACH

ZHANG JIANLIN

B C ( S C L S S H O N S , L N D O N , M C ( E R I ) L E

A THESIS SUBMITTED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY (ECONOMICS)

DEPARTMENT OF ECONOMICS NATIONAL UNIVERSITY OF SINGAPORE

2009

Table of Contents

Page

3.3 Methods and Design of the Experiment 67

Behaviour

3.4.5 The Impact of the Number of Third Party Observers on Dictator’s 84 Behavior

An Experimental Investigation

Procedures on Social Preferences

5.3 Experimental Results 128

Summary

Most economic models assume that people are exclusively motivated by material self-interests Recently, countless evidence from many economic experiments has systematically refuted this rational self-interest hypothesis The evidence has led many people to conclude that people also care about fairness and other people’s wellbeing, and exhibits reciprocity towards others Many theories have been written to explain the observed evidence and some of them have shed lights on issues that have puzzled economists for a long time In this thesis, I investigate some issues of other-regarding preference In the first and second essay, I investigate the impact of other regarding preference on behaviour inside organization and in the society at large respectively I investigate the nature of other-regarding preference under different institutional arrangements in the third and fourth essay

In the first essay, I study the role of delegation in the principal-agent relationship based on the theoretical construction of Aghion and Tirole (1997) Using a simple experiment, the experimental results shows considerable supports to the main thesis of Aghion and Tirole (1997) That is, delegation of formal authority to the agent motivates the agent to exert higher effort, albeit the payoff

to the owner is less clear-cut Many new findings that are not predicted by the theory have also been uncovered In particular, agents did not behave in a completely selfish manner, and both the principal and the agent exhibited a noticeable degree of fairness even at their private cost

In the second essay, I investigate the characteristics and the nature of social norms using modified third party punishment game (Fehr and Fischbacher, 2004) The main experimental quest is whether having multiple third party observers will lead to free-ridings on other’s motive to punish the violation of social norms The experimental results not only prove the existence of free-ridings motives among the third party observers, the results also shows that this free-riding effect was strong

By twisting the impact of the third party observer’s punishment on the dictator, I also found that the incentive to punish was weakened when the impact of punishment was low When looking at the

behavioural response of the dictators when the number of third party observers varied, I incidentally found a strong negative relationship between the dictator’s transfer and the number of third party observer presented in the game

The third essay evaluates the property of other-regarding behaviour by manipulating the social environment that participants are in The experimental results show that disclosing information

on the relative ranking of the dictators’ ability and the distribution of their scores results in their giving a lower amount This finding suggests that a meritocratic environment that is characterized by

an explicit social comparison will result in a society that exhibits less generosity towards others

The property of other-regarding preference is further investigated in the fourth essay In the fourth property, I investigate the possible link between the procedure with which the money endowment is generated and distributed among individuals and the allocation decisions of these individuals using a two-stage dictator game The experimental results show that the allocators were more generous under the egalitarian treatment, in which the allocators’ endowments were imposed to

be the average earnings from performing the required task in stage one of the modified dictator game, than under the meritocratic treatment of which the allocators’ endowments reflected their true ability

in performing the required task Thus, in essence, the egalitarian treatment gave rise to a stronger other regarding behaviour of the allocators Most interestingly, being taxed and “forced” to subsidize the low performers did not diminish the high performers’ generosity The findings thus tie closely with Boulding (1973) and Moody (2008)’s serial reciprocity and further implies that people’s other-regarding preference might not be inherently stable

List of Tables

Page



25

Table 2.14: The Mann–Whitney–Wilcoxon Test on Probabilities of Delegation,

Overruling, Selfishness, Fairness and Gambling behaviours

54

Table 3.3: Mean amount of transferred and mean amount of punishment from round 3 to

round 9

72

Table 3.6: Mean Amounts of Transfer and Mean Amount of Punishment in the MPP3 and

MPP1 Treatment

82

Table 3.7: Mean Amount of Transfer from Dictator 87

Table 5.7: OLS Regressions with the Contribution Rate of the Low and High Scorers as

the Dependent Variables

138

List of Figures

Page

Figure 2.6: Proportion of the Uninformed Agent Recommending a Project Randomly

across Rounds

49

Figure 3.1: Time Series plots on Mean Amount of Transfer and Mean Amount of

Punishment

73

Figure 3.2: Proportion of third party observers Decided to Punish across Rounds in the

TPP and MPP3 treatments

76

Figure 3.4: Amount of Punishment Against Level of Transfer in the TPP and the MPP3

Treatment

79

Figure 3.5: Distributions of Amount of Punishment in the MPP3 and the MPP1 Treatments 83

Figure 5.1: The Allocators’ Scores Across Treatments 129

Figure 5.3: The Histograms of the Contribution Rate for the Low and High Scorers Across

Treatments

132

Overruling, Selfishness, Fairness and Gambling behaviours

54

Table 3.3: Mean amount of transferred and mean amount...

Table 3.6: Mean Amounts of Transfer and Mean Amount of Punishment in the MPP3 and

MPP1 Treatment

82