We analyze how agents’ present bias affects optimal contracting in an infinite-horizon employment setting. The principal maximizes profits by offering a menu of contracts to naive agents: a virtual contract - which agents plan to choose in the future - and a real contract which they end up...

An important aspect in determining the effectiveness of gift exchange relations in labor markets is the ability of the worker to repay the gift to the employer. To test this hypothesis, we conduct a real effort laboratory experiment where we vary the wage and the effect of the worker's effort on...

Discrimination is an ubiquitous phenomenon in many societies, but little is known about its origins in childhood. In a framed field experiment, we let 142 three to six-year old preschool children allocate a fixed endowment between an in-group and an out-group receiver in two domains (gender and...

Employment protection harms early-career employees without benefitting them in later career stages (Leonardi and Pica, 2013). We demonstrate that this pattern can result from employers exploiting naïve present-biased employees. Employers offer a dynamic contract with low early-career wages, an...

The corporate finance literature documents that managers tend to overinvest into physical assets. A number of theoretical contributions have aimed to explain this stylized fact, most of them focussing on a fundamental agency problem between shareholders and managers. The present paper shows that...

According to Chen’s (2013) linguistic-savings hypothesis, languages which grammatically separate the future and the present (like English or Italian) induce less future-oriented behavior than languages in which speakers can refer to the future by using present tense (like German). We...

To investigate the external validity of laboratory results, we combine a public good experiment with three treatments in a field experiment. One treatment offers the opportunity to free-ride, the other two are placebo treatments. We compare results within subjects. In the free-riding treatment,...

There is ample empirical evidence indicating that a substantial fraction of the population exhibits social preferences. Recent work also shows that social preferences influence the effectiveness of incentives in labor relations. Hence when making contracting decisions, employers should take into...

We conduct a field experiment where we vary both the presence of a gift exchange wage and the effect of the worker's effort on the manager's payoff. The results indicate a strong complementarity between the initial wage gift and the agent's ability to repay the gift. We collect information on...