Experimental Design
Subjects are either in the role of managers or workers. They make decisions in the context of a single-period, experimental labor market interaction. The context of manager-worker interactions follows a one-sided auction for hiring. Each manager makes one contract offer to hire a worker who accepts the offer and then works on the manager’s project at an exogenously fixed wage. A worker can be hired under only one contract offer‒but is free to reject all offers and remain unhired‒and a manager can only hire one worker who accepts his/her offer. A hired worker earns the fixed wage minus the effort cost. The abstract effort level chosen by the worker determines the chances of binary outcomes of the project, either success or failure, and the effort cost; the higher the effort level, the higher the chances of project success, and the higher the cost. When the project is successful, the manager gets strictly higher project earnings than when the project fails. Both the manager and the worker learn the realization of their project outcomes. However, the manager cannot observe the effort level directly.
A contract offer stipulates each manager’s leadership style, i.e., the style of ex-post communication, contingent on the project outcome. Further details of our experimental design are described in the attached pdf.