Research

Publications

Efficiency Wages with Motivated Agents (joint with Lea Cassar, Anna Deréky and Florian Engl)

Games and Economic Behavior (2024), 145, pp. 66-83

Abstract

Many jobs serve a social purpose beyond profit maximization, contributing positively to society. This paper uses a modified principal-agent gift-exchange game with positive externality (prosocial treatment) to study how workers’ prosocial motivation interacts with the use of efficiency wages in stimulating effort. We find that prosocial motivation and efficiency wages are independent in stimulating effort: compared to a standard gift-exchange game (GE treatment), the presence of the externality shifts the agents’ effort choice function upwards without affecting its slope. Thus, if principals were profit-maximizers, wage offers should be the same in both treatments. However, principals offer higher wages in the prosocial treatment. We show that this is due to principals in the GE treatment highly underestimating agents’ reciprocity and thereby offering wages below the profit-maximizing level. Results from robustness-checks further suggest that our findings are unlikely to be driven by a simple efficiency effect.

Managing Anticipation and Reference-Dependent Choice (joint with Christopher Kops)

Journal of Mathematical Economics (2024), 112, 102988

Abstract

Extensive field and experimental evidence shows that reference points shape behavior. But, what shapes the reference point? Candidates put forward in the literature range from the status quo, to rational expectations and the narrow focus of dreaming or worrying about a single possible outcome. This paper develops a model that includes all of these candidate sources. It does so, by allowing the reference point to be any convex combination of the outcomes possible under a consumption lottery. We introduce new solution concepts for reference-dependent choices, characterize these solution concepts on the level of choice data and identify the model’s parameters.

Optimal Contracting with Endogenous Project Mission (joint with Lea Cassar)

Journal of the European Economic Association (2020), 18(5), pp. 2647-2676

Abstract

Empirical evidence suggests that workers care about the mission of their job, in addition to their wage. This paper studies how organizations can choose a mission to attract, incentivize, and screen their workers. We analyze a model in which a principal offers a contract to an agent for the development of a project and can influence the agent’s marginal return of effort through the choice of project mission. The principal’s and the agents’ mission preferences are misaligned and the agents vary in the intensity of their mission drive. Our main results highlight that how far the organization chooses to move from its preferred mission depends on the contractual environment in which it operates. Missions will be more agent-preferred in environments in which effort is noncontractible. In environments in which agents’ drive is unknown, missions will be less agent-preferred and the organization will find it optimal to offer contract menus that may be implemented via scoring auctions when there are competing agents. Our analysis applies to the design and allocation of aid contracts, research funding, and creative jobs.

This or That? Sequential Rationalization of Indecisive Choice Behavior (joint with Christopher Kops)

Theory and Decision (2018), 84(4), pp. 507-524

Abstract

Decision-makers frequently struggle to base their choices on an exhaustive evaluation of all options at stake. This is particularly so when the choice problem at hand is complex, because the available alternatives are hard (if not impossible) to compare. Rather than striving to choose the most valuable alternative, in such situations decision-makers often settle for the choice of an alternative which is not inferior to any other available alternative instead. In this paper, we extend two established models of boundedly rational choice, the categorize then choose heuristic and the rational shortlist method, to incorporate this kind of “indecisive” choice behavior. We study some properties of these extensions and provide full behavioral characterizations.

Working Papers

Centralized versus Decentralized Selling of Goods with Uncertain Consumption Quality (joint with Matthias Kräkel)

Abstract

We show that choosing a decentralized channel (retailer or sales representative) instead of a centralized channel for selling goods with uncertain consumption quality can be optimal for a manufacturer as a self-commitment device. Selling of such goods is typically associated with sales activities (e.g., sales talks, product presentations) that lead to considerable costs. As these costs only accrue to the party that directly interacts with consumers and as sales activities do not play a role in a perfect Bayesian equilibrium, it will be optimal for a manufacturer to leave consumer interactions to a retailer if the double-marginalization problem does not dominate, or to a sales representative if the respective labor costs are not too large. Broadly speaking, manufacturers choose decentralization to avoid costs of interacting with consumers, as these costs will be particularly high if goods are characterized by uncertain consumption quality. In a second step, we show that this argument also holds under product competition, consumer naivety, product innovation, and product quality improvement.

Work in Progress

The Completeness of Social Preference Theories with Unobserved Heterogeneity (single-authored)

Abstract

We use machine learning methods as a benchmark for evaluating the predictive capability of simple parameterized social preference theories in a random utility framework. To that end, we use panel data from the lab containing experimental observations of binary dictator games and reciprocity games from Bruhin et al. (2019). To evaluate a given model’s predictive capability we apply the concept of a model’s completeness introduced by Fudenberg et al. (2022), which reveals (i) how large a fraction of the predictable variation of the data a given social preference model captures, and (ii) how large a gain in performance the model brings compared to a naive baseline model. To address the potential remaining patterns in the data that are not captured on the level of the representative agent, we extend the methodological contribution to allow for unobserved heterogeneity and show its application in a data sparse environment.