The hidden costs of malus contracts

Last registered on January 19, 2024
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Pre-Trial

Trial Information

General Information

Title
The hidden costs of malus contracts
RCT ID
AEARCTR-0002605
Initial registration date
December 01, 2017

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
December 02, 2017, 7:16 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
January 19, 2024, 5:14 AM EST

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Country
Germany
Region

Primary Investigator

Name
Andrea Essl
Affiliation
University of Bern
Contact Primary Investigator

Other Primary Investigator(s)

PI Name
Frauke Bieberstein
PI Affiliation
University of Bern
Contact Investigator
PI Name
Kathrin Friedrich
PI Affiliation
University of Bern
Contact Investigator

Additional Trial Information

Status
Completed
Start date
2017-12-05
End date
2018-12-31
Keywords
Labor
Additional Keywords
Lab experiment, Contracts, Bonus, Malus, Loss aversion, Trust game
JEL code(s)
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This laboratory experiment is aimed at examining the effect of malus contracts in a principal agent relationship. In particular, we want to understand whether the agent’s experience of a malus (having to pay back money to the principal) subsequently leads to a decrease in reciprocal behavior of the agent toward the principal. In order to study this question we will compare behavior in a malus treatment to behavior in a payoff-equivalent bonus treatment. Reciprocity is measured as behavior of the agent in the role of the trustee in a trust game. We will also consider whether the principal anticipates the agent’s choice by studying her decision in the role of the trustor. *In addition, we will examine the contract choice of the principal for the initial real-effort task, the number of tasks solved by the agent in the real-effort task and the impact of loss and risk aversion on all of the above outcomes. The intervention is a between-subject design.
External Link(s)

Registration Citation

Citation
Bieberstein, Frauke, Andrea Essl and Kathrin Friedrich. 2024. "The hidden costs of malus contracts." AEA RCT Registry. January 19. https://doi.org/10.1257/rct.2605-1.1
Former Citation
Bieberstein, Frauke, Andrea Essl and Kathrin Friedrich. 2024. "The hidden costs of malus contracts." AEA RCT Registry. January 19. https://www.socialscienceregistry.org/trials/2605/history/208600
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
Between-subject design. Two treatments: malus treatment and gain treatment.
Intervention Start Date
2017-12-05
Intervention End Date
2017-12-06

Primary Outcomes

Primary Outcomes (end points)
Money returned by trustee (the agent) in a trust game. In addition, we will consider money transferred by trustor (principal), contract choice of principal, number of tasks solved by agent in real-effort task, impact of loss and risk aversion on above outcomes.
We will control for individual differences as given by the questionnaire.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Between-subject design. Pairs of principal and agent are randomly formed. The principal decides on the contract for the agent for a real-effort task. In the malus (bonus) treatment, the principal can choose between a fixed wage and a malus (bonus) contract. After the initial payments, the agent works on the real-effort task and receives the bonus/pays the malus depending on the treatment. Then, a trust game is played with the principal as trustor and the agent as trustee. In addition, we elicit individual loss and risk aversion and baseline performance. Finally, participants fill out an unincentivized questionnaire.
Experimental Design Details
Randomization Method
Computer (lab experiment)
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
-
Sample size: planned number of observations
In total about 170 participants
Sample size (or number of clusters) by treatment arms
About 85 participants in bonus treatment, about 85 participants in malus treatment
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
December 15, 2017, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
December 15, 2017, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
168
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
168
Final Sample Size (or Number of Clusters) by Treatment Arms
42 agents by treatment
Data Publication

Data Publication

Is public data available?
No

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Program Files

Program Files
No
Reports, Papers & Other Materials

Relevant Paper(s)

Abstract
Loss contracts are rarely observed in practice, although research suggests that they induce higher effort
compared to gain contracts. We experimentally examine one potential reason for this scarcity: agents’
reciprocity toward the principal might be negatively affected by loss contracts. First, agents worked
on a real effort task under either a gain or a loss contract. Second, principals and agents played a trust
game. We find that loss contracts induce more effort, and thus a higher payoff for the principal in
the real effort task. However, we do not find a spillover effect of contract framing in the trust game.
Differences in reciprocity are small in size and not significant. Thus, they cannot explain the rare use
of loss contracts in practice.
Citation
von Bieberstein, F. & Essl, A. & Kathrin Friedrich (2020). Gain versus loss contracts: Does contract framing affect agents’ reciprocity?, Economics Letters, 187,108846.
URL
https://doi.org/10.1016/j.econlet.2019.108846

Reports & Other Materials