There are 3 treatments. It's a between-subjects design.
1. Baseline treatment (classical principal-agent analysis)
Subjects are randomly assigned to two roles fi rms and workers. Each subject is assigned to one and only one of these two roles. There is one firm and one worker in each group.
Subjects in the role of firms make one of the following two choices. (i) Offer the contract, which gives them a positive profi t, or (ii) exit the experiment with only the participation fee.
Subjects in the role of workers make one of the following two choices. (i) Choose the contract that is offered, in which case they also need to choose the effort level, which is either `high' or `low', or (ii) choose to exit the experiment with their participation fee.
The chosen effort level is only privately observable to the worker, but it is never observed by the fi rm. The fi rm cannot observe the effort level of the worker, and hence cannot punish or impose any sanctions on the worker.
Each effort level leads to one of two possible states of the world - a good state and a bad state. (i) A good state of the world, in which the fi rm receives a high profi t, or (ii) a bad state of the world in which the firm receives a low pro fit.
Information on the level of profi ts in each state of the world, good state and bad state, is shown only to the firms but not to the workers.
A high (low) effort level by the worker makes the good (bad) state and high (low) profi ts of the fi rm, relatively more likely.
Workers make their effort choices for two different cases, both run in a random order.
Variable wage case: In the first case, workers are paid a wage that depends only on the state of the world.
Fixed Wage case: In the second case, workers are paid a fi xed wage independent of the state of the world.
The two cases will run only once. After completing responses for one case, subjects cannot know any result fron the completed part before starting the second case. After completing both cases, they will get to know the results of both cases. Subject's income in tokens is calculated separately in each case and it depends on their decisions and the decisions of their matched fi rm or worker. After the experiment, only one case will be randomly chosen to pay the subjects. The identity of subjects stays anonymous.
2. Treatment 1 (Firm culture, workplace norms, and guilt-aversion)
The only difference than baseline treatment is that in Treatment 1 the workplace norms announcement makes workers aware of the firm's expectations of worker's (high) effort.
3. Treatment 2 (Social norms and shame-aversion)
The only difference than baseline treatment is that in Treatment 2 the workers are given information that their social group expect they ought to choose a `high' effort level. Subjects also receive information on the effort level chosen by other members of the social group in similar experiments. If a worker falls short of the effort expectations of their social group, they could be sanctioned by the social group. Such sanctions take the form of social disapproval of `low' effort that falls below the expectations of the social group.