Adopting the indirect evolutionary approach, we show that it might be beneficial for firms on a heterogeneous market not only to care for their profits but also for their respective customers' welfare.

In this study we propose a formal framework for the indirect evolutionary approach as initiated by Güth and Yaari (1992). It allows to endogenize preferences and to study their evolution. We define two-player indirect evolutionary games with observable types and show how to incorporate...

Principal-agent theory usually assumes that the players are perfectly rational. In contrast, real human decision makers are only boundedly rational. If a firm (principal) wants to design a work contract that maximizes profit, it should consider how workers (agents) will actually react rather...

Whether Individuals can build up and sustain mutually beneficial cooperation or, more generally, whether they comply with social norms, may depend crucially on the observability of their actions. If these cannot be monitored perfectly, the individual might be tempted to egoistically exploit this...

The principal-agent problem is often illustrated by the relationship between owners and managers in modern corporations. Our experimental study considers the problem where the owner has to motivate the manager by an employment contract serving the owner'rsquo;s interest. The contract specifies a...

We present a lab experiment on an endogenous trust game in which one player (the principal) may decide to leave the investment choice to the agent or to take the investment decision himself/herself. In the latter case we refer to this as “voluntary leadership”. We show that voluntary...

We examine learning behavior in auctions and Fair division games with independent private values under two different price rules, first and second price. Participants face these four games repeatedly and submit complete bid functions rather than single bids. This allows us to examine whether...

Modern 'principal-agent theory' has made a lot of progress in proposing theoretical Solutions to agency problems. This paper contributes to a better understanding of behavior in agency situations. In particular, we provide experimental evidence on offered contracts and effort choices in a simple...

In auctions an outside seIler offers a commodity for sale and collects the revenue w hich is achieved. In fair division games the object is owned by the group of bidders. Consequently the auction's revenue is equally distributed among all bidders. In our experiment participants face four auction...

Dismissal rules, i.e. legally enforced long term contracts, have beem defended against criticism for, among other things, providing efficient incentives to invest in relationship specific skills. However, in many situations efficient investment can also be attained by spot contracts. We...