Incentive Effects of Funding Contracts : An Experiment

Reiss, J. Philipp; Wolff, Irenaeus

Incentive Effects of Funding Contracts : An Experiment

Dateien

TWI-RPS-070-Reiss-Wolff-2011-10.pdfGröße: 1.34 MBDownloads: 219

Datum

2011

Autor:innen

Reiss, J. Philipp

Wolff, Irenaeus

Open Access-Veröffentlichung

Open Access Green

Sammlungen

Wirtschaftswissenschaften

Publikationstyp

Working Paper/Technical Report

Publikationsstatus

Published

Zusammenfassung

We examine the incentive e ffects of funding contracts on entrepreneurial eff ort decisions and allocative e ciency. We experiment with four types of contracts (standard debt contract, outside equity, non-monotonic contract, full-subsidy contract) that di er in the structure of investor repayment and, therefore, in the incentives for entrepreneurial e ffort provision. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces eff ort distortions and increases e ciency. We test this non-monotonic-contracts hypothesis in the laboratory as well.
Our results reveal that the incentive e ffects of funding contracts need to be
experienced before they refl ect in observed behavior. With su cient experience
observed behavior is consistent with the theoretical predictions and supports the non-monotonic-contracts hypothesis: we fi nd that the replacement of a standard debt contract by a repayment-neutral non-monotonic contract increases entrepreneurial income by 170% and total surplus by 30% in our setting.

Fachgebiet (DDC)

330 Wirtschaft

Schlagwörter

hidden information, funding contracts, incentives, experiment, standard

Zitieren

ISO 690

REISS, J. Philipp, Irenaeus WOLFF, 2011. Incentive Effects of Funding Contracts : An Experiment

BibTex

@techreport{Reiss2011Incen-17672,
  year={2011},
  series={Research paper series / Thurgauer Wirtschaftsinstitut},
  title={Incentive Effects of Funding Contracts : An Experiment},
  number={70},
  author={Reiss, J. Philipp and Wolff, Irenaeus}
}

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    <dcterms:abstract xml:lang="eng">We examine the incentive e ffects of funding contracts on entrepreneurial eff ort decisions and allocative e ciency. We experiment with four types of contracts (standard debt contract, outside equity, non-monotonic contract, full-subsidy contract) that di er in the structure of investor repayment and, therefore, in the incentives for entrepreneurial e ffort provision. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces eff ort distortions and increases e ciency. We test this non-monotonic-contracts hypothesis in the laboratory as well.&lt;br /&gt;Our results reveal that the incentive e ffects of funding contracts need to be&lt;br /&gt;experienced before they refl ect in observed behavior. With su cient experience&lt;br /&gt;observed behavior is consistent with the theoretical predictions and supports the non-monotonic-contracts hypothesis: we fi nd that the replacement of a standard debt contract by a repayment-neutral non-monotonic contract increases entrepreneurial income by 170% and total surplus by 30% in our setting.</dcterms:abstract>
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