Papers

Remote Work and Team Productivity

with E. Glenn Dutcher (Ohio University)
Working Paper

Abstract

Remote work policies remain controversial mainly because of productivity concerns. The existing literature highlights how the remote setting affects individual productivity yet little is known about how the remote setting affects work in teams - where productivity losses are potentially higher given the additional role of beliefs over partner productivity. Our study closes this gap by examining the effort of individuals randomly assigned to work in either a remote or office setting with partners who are remote and office based. We find that remote workers contribute more effort to the team than office workers, with no differences based on the location of their partners. Office workers incorrectly believe their remote teammates' contributions will be lower and respond by contributing less effort to the team when paired with remote partners versus office partners. Hence, productivity issues in remote teams are driven by the biased beliefs of office workers rather than true productivity differences, which suggests that managerial policies should focus on correcting these incorrect beliefs rather than limiting remote work.

The Value of Consensus: An Experimental Analysis of Costly Deliberation

with Marcello Puca (University of Bergamo), Simone Sepe (University of Arizona)
Working Paper

Abstract

Combining theory and experiments, we examine decision-making with endogenous deliberation across different voting rules: consensus and veto unanimity, and simple majority. Before voting, asymmetrically informed agents choose whether to engage in potentially costly communication to aggregate their private information. In line with existing studies, we find that free communication minimizes differences in decision-making across rules. In contrast, with costly communication, differences in decision-making re-emerge as the voting rules affect communication and private information aggregation. Consensus unanimity frequently outperforms the other rules because it induces more communication among agents. This work provides a new rationale for the legitimacy of the commonly used consensus unanimity voting rule in jury trials.

Is "Real" Effort More Real?

with Glenn Dutcher (Ohio University), Tim Salmon (Southern Methodist University)
Working Paper

Abstract

A growing number of studies use "real" effort designs for laboratory experiments where subjects engage in an actual task as a form of effort provision. The commonly argued reason for using real effort is that it is more generalizable and field relevant than using stylized effort where subjects simply choose some level of costly effort. We find little support for these claims. Moreover, we revisit past real effort designs and note that a common thread is that they lack any cost of effort. To make this point clear, we first provide a theoretical characterization of the nature of effort costs to provide a better understanding of how to model them in the lab. We then conduct two experiments with the aim of testing whether there are differences in behavior between real and stylized designs. In both tests we find that there are no differences though we also discuss situations in which that might not be the case. We also design and test a module for implementing proper effort costs in a real effort experiment which could be added on to almost any real effort design which should help overcome some of the shortcomings we demonstrate with standard real effort experiments.

Exploring Entrepreneurship with Experimental Economics

with David Cooper (University of Iowa, University of East Anglia)
ChapterA Research Agenda for Entrepreneurial Decision Making, Dubard Barbosa, S. and Fayolle, A (eds.)

Abstract

Entrepreneurs are frequently modeled as having different traits from non-entrepreneurs which drives differences in who chooses to become an entrepreneur. A large body of non-incentivized survey evidence has explored this assumption empirically, but with limited success. The methodology of experimental economics presents a promising, complementary avenue to help understand this disconnect. This chapter presents an overview of the methodology of experiments in economics and explores how they have been used to examine how entrepreneurs make decisions in both individual and strategic decision-making settings.

Why Join a Team?

with David Cooper (University of Iowa, University of East Anglia), Marie Claire Villeval (University of Lyon, CNRS GATE)
Journal Article Management Science, forthcoming

Abstract

We present experiments exploring why high ability workers join teams with less able co-workers when there are no short-term financial benefits. We distinguish between two explanations: pro-social preferences and expected long-term financial gains from teaching future teammates. Participants perform a real-effort task and decide whether to work independently or join a two-person team. Treatments vary the payment scheme (piece rate or revenue sharing), whether teammates can communicate, and the role of teaching. High ability workers are more willing to join teams in the absence of revenue sharing and less willing to join teams when they cannot communicate. When communication is possible, the choice of high ability workers to join teams is driven by expected future financial gains from teaching rather than some variety of pro-social preferences. This result has important implications for the role of adverse selection in determining the productivity of teams.

The Behavioral Approach to Entrepreneurship

with David Cooper (University of Iowa, University of East Anglia)
ChapterThe Handbook of Labor, Human Resources and Population Economics, Marie Claire Villeval and Klaus Zimmerman (eds.)

Abstract

While a subset of entrepreneurs makes large gains by becoming self-employed, many make less than they would in paid employment and failure is frequent. Yet, individuals persist as entrepreneurs, including those who fail and try again. This suggests that some non-pecuniary feature of entrepreneurs’ preferences must be quite different from the general population. This chapter explores how risk preferences, preferences for autonomy, time preferences, preferences for competition, and social preferences may differ for entrepreneurs using a behavioral economics perspective.

Auctions with Limited Liability through Default or Resale

with Marco Pagnozzi (University of Naples Federico II, CSEF)
Journal ArticleJournal of Economic Behavior and Organization

Abstract

If bidders are uncertain about their value when they participate in an auction, they may overbid and suffer ex-post losses. Limited liability mitigates these losses, and may result in more aggressive bidding and higher seller revenue, but also in an inefficient allocation. Using a combination of theory and experiment, we analyze three different forms of liability in second-price auctions: full liability, limited liability by default with varying penalties, and resale-based limited liability. With a default penalty, bids are higher than under full liability, but final revenue and efficiency are lower due to the frequency of default. Auctions with resale result in the highest revenue and allocative efficiency, and are as effective as a low default penalty in alleviating bidders' losses. Hence, allowing resale as a form of limited liability may be preferred by both bidders and sellers over other liability rules.

Entry by Successful Speculators in Auctions with Resale

with Marco Pagnozzi (University of Naples Federico II, CSEF)
Journal ArticleExperimental Economics

Abstract

We experimentally analyze the role of speculators, who have no use value for the objects on sale, in auctions. The environment is a uniform-price sealed-bid auction for 2 identical objects, followed by a free-form bargaining resale market. There is always one positive-value bidder, and either one to two speculators who may choose whether to enter the auction. We show that the bidder accommodates speculators by reducing demand in the auction and subsequently purchasing in the resale market, which encourages entry by speculators. The presence of multiple speculators induces each speculator to enter less often, but increases competition in the auction and the auction price. Speculators earn positive profits on average, except when multiple speculators enter the auction.

Coordination and Focality Under Gain-Loss Framing: Experimental Evidence

with Odile Poulsen (University of East Anglia)
Journal ArticleEconomics Letters

Abstract

Are people better at coordinating on a focal point when the game is framed as coordinating on a division of losses rather than gains? In an experimental coordination game, we vary the payoff framing (gain vs loss) and stake size (low vs high) to examine this question. We find that loss framing reduces coordination on the focal point, with the strongest effect observed in high stakes games.

Efficiency in Auctions with (Failed) Resale

with Marco Pagnozzi (University of Naples Federico II, CSEF)
Journal ArticleJournal of Economic Behavior and Organization

Abstract

We analyze how the possibility of resale affects efficiency in multi-object uniform-price auctions with asymmetric bidders using a combination of theory and experiments. The resale market is modelled as an unstructured bargaining game between auction bidders. Our experimental design consists of four treatments that vary the (exogenous) probability that bidders participate in a resale market after the auction. In all treatments, the possibility of resale increases efficiency after the auction, but it also induces demand reduction by high-value bidders during the auction, which reduces auction efficiency. In contrast to what is usually argued, resale does not necessarily increase final efficiency. When there is a low probability of a resale market, final efficiency is actually lower than in an auction without resale.

Demand Reduction in Multi-Object Auctions with Resale: An Experimental Analysis

(Earlier draft circulated as: Multi-Object Auctions with Resale: An Experimental Analysis)

with Marco Pagnozzi (University of Naples Federico II, CSEF)
Journal ArticleEcononomic Journal

Abstract

We analyze the effects of different resale mechanisms in multi-object uniform-price auctions with asymmetric bidders. The possibility of resale affects bidders' strategies, and hence the allocation of the objects on sale. Our experimental design consists of four treatments: one without resale and three resale treatments that vary the information available and the bargaining mechanism in the resale market. As predicted by theory: (i) without resale, asymmetry among bidders reduces demand reduction; (ii) the presence of a resale market, regardless of its structure, increases demand reduction by high-value bidders and speculation by low-value bidders, thus reducing auction efficiency. Low-value bidders always prefer resale to be allowed, but high-value bidders may not. In contrast to what is usually argued, resale does not necessarily increase final efficiency and may not reduce the seller's revenue. Features of the resale market that tend to increase its efficiency also reduce auction efficiency and the seller's revenue.

Procurement Auctions with Renegotiation and Wealth Constraints

with Wei-Shiun Chang (National Cheng Kung University), Tim Salmon (Southern Methodist University)
Journal ArticleEconomic Inquiry

Abstract

Renegotiation is a common practice in procurement auctions which allows for post-auction price adjustments and is nominally intended to deal with the problem that sellers might underestimate the eventual costs of a project during the auction. Using a combination of theory and experiments, we examine the effectiveness of renegotiation at solving this problem. Our findings demonstrate that renegotiation is rarely successful at solving the problem of sellers misestimating costs. The primary effect of allowing renegotiation is that it advantages sellers who possess a credible commitment of default should they have underbid the project. Renegotiation allows these weaker types of sellers to win more often and it also allows them to leverage their commitment of default into higher prices in renegotiation from a buyer.

Entrepreneurship and Team Participation: An Experimental Study

with David J. Cooper (Florida State University)
Journal ArticleEuropean Economic Review

Abstract

Entrepreneurs are surprisingly unlikely to have partners. One possible explanation for this is that entrepreneurs have distinctive preferences for working alone rather than in teams. However, a number of alternative explanations exist, such as an inability to locate suitable partners or low profitability from having a partner. Utilizing a diverse subject population with a high proportion of active entrepreneurs, we use a team production experiment to directly examine whether entrepreneurs prefer to work alone or in a team. The experiment also measures an important determinant of entrepreneurs' performances within teams, and their relative tendency to free-ride. The data indicate that entrepreneurs, while no more likely to free-ride on their teammates, are substantially more interested in working alone than similar non-entrepreneurs.

Speculation and Demand Reduction in English Clock Auctions with Resale

Journal ArticleJournal of Economic Behavior and Organization

Abstract

Many auctions are followed by a resale market which occurs when the winner of the auction resells the item won to one of the participants from the original auction. The existence of such transactions may initially appear counter intuitive. However, this paper will show that active inter-bidder resale results from payoff maximizing decisions in the auction that take into account the incentives of a resale opportunity. Specifically, I examine how the existence of an inter-bidder resale opportunity impacts bidder behavior in an English clock auction, and to what extent altering the bargaining power of the final buyer and reseller in the resale market determines the strategies followed in the initial auction, in an attempt to understand the existence of these inter-bidder transactions. Theoretical and behavioral analysis is used to develop hypotheses of speculation (bidding above value) and demand reduction (bidding below value) which are directly tested in a controlled experimental setting. While value bidding is a dominant strategy in a standard English clock auction without resale, when resale is allowed, this theoretical claim is weaker. Demand reduction is observed when the bargaining power is shifted to the final buyer in resale and when the bargaining power is shifted toward the reseller, speculation is observed. The revenue achieved in the initial auction depends on the behavior observed in the auction. Regardless of bargaining power, revenue is shown to decrease below what would have been earned in an English auction without resale due to demand reduction. When the reseller has the bargaining power, and speculation is observed, this loss in revenue is somewhat mitigated by increased speculation.