Incentive effects of funding contracts : an experiment

Reiß, J. Philipp; Wolff, Irenaeus

Incentive effects of funding contracts : an experiment

Dateien

Reiss_0-320231.pdfGröße: 645.46 KBDownloads: 317

Datum

2014

Autor:innen

Reiß, J. Philipp

Wolff, Irenaeus

Open Access-Veröffentlichung

Open Access Green

Sammlungen

Wirtschaftswissenschaften

Publikationstyp

Zeitschriftenartikel

Publikationsstatus

Published

Erschienen in

Experimental Economics. 2014, 17(4), pp. 586-614. ISSN 1386-4157. eISSN 1573-6938. Available under: doi: 10.1007/s10683-013-9385-5

Zusammenfassung

We examine the incentive effects of funding contracts on entrepreneurial effort and on allocative efficiency. We experiment with funding contracts that differ in the structure of investor repayment and, thus, in their incentives for the provision of entrepreneurial effort. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces effort distortions and increases efficiency. Likewise, distortions can be mitigated by replacing outside equity by a repayment-equivalent standard-debt contract. We test both hypotheses in the laboratory. Our results reveal that the incentive effects of funding contracts must be experienced before they are reflected in observed behavior. With sufficient experience, observed behavior is either consistent with or close to theoretical predictions and supports both hypotheses. If we allow for entrepreneur-sided manipulations of project outcomes, we find that non-monotonic contracts lose much of their appeal.

Fachgebiet (DDC)

330 Wirtschaft

Schlagwörter

Hidden Information, Funding contracts, Incentives, Experiment, Standard debt contract, non-monotonic contract, state manipulation

Zitieren

ISO 690

REISS, J. Philipp, Irenaeus WOLFF, 2014. Incentive effects of funding contracts : an experiment. In: Experimental Economics. 2014, 17(4), pp. 586-614. ISSN 1386-4157. eISSN 1573-6938. Available under: doi: 10.1007/s10683-013-9385-5

BibTex

@article{Rei2014Incen-32931,
  year={2014},
  doi={10.1007/s10683-013-9385-5},
  title={Incentive effects of funding contracts : an experiment},
  number={4},
  volume={17},
  issn={1386-4157},
  journal={Experimental Economics},
  pages={586--614},
  author={Reiß, J. Philipp and Wolff, Irenaeus}
}

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