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  • On Traits, Attributes, and Incentives –

    Motivating Heterogeneous Agents

    Inaugural-Dissertation

    zur Erlangung des Grades

    Doctor oeconomiae publicae (Dr. oec. publ.)

    an der Ludwig-Maximilians-Universität München

    2017

    vorgelegt von

    Katharina Christine Schüßler

    Referent: Prof. Dr. Florian Englmaier

    Korreferent: Prof. Stephen Leider, PhD

    Promotionsabschlussberatung: 31. Januar 2018

  • Tag der mündlichen Prüfung: 16.01.2018

    Namen der Gutachter: Florian Englmaier, Stephen Leider, Simeon Schudy

  • Acknowledgments

    At this point, I would like to thank all the people who have made this dissertation

    possible. First and foremost, I would like to thank my supervisor, Florian Englmaier,

    who not only convinced me to pursue a PhD in economics and provided invaluable

    assistance along the way, but also made this journey much more fun. Without his

    constant enthusiasm and unrestricted support I wouldn’t be where I am today. I am

    also grateful to my second advisor Stephen Leider, who not only made it possible for me

    to visit the University of Michigan, but also provided invaluable feedback on early-stage

    ideas, presentations, papers, and academic life in general. I also thank Simeon Schudy

    for his advice and for being the third member of my thesis committee.

    In addition, I would like to thank all the other people who also provided invaluable

    support in writing this dissertation, my co-author Matthias Fahn, my colleagues at the

    MGSE, especially Max Breu and Raphael Guber, and the whole Micro research group at

    LMU – thank you all for discussing research ideas, problems, and papers with me. To

    Anne, Maria, Max, Michi, Nadine, Raphael, Sarah: thanks for being my support and

    my friends! You made the PhD journey worthwhile. Also, I owe a big thank you to

    Manu Beckstein and Julia Zimmermann for helping me wrestle with all administrative

    issues. In addition, I feel very grateful to have been part of the EBE graduate program,

    to be part of a highly motivated cohort and towards our program coordinators, Joachim

    Winter and Florian Englmaier. Funding through the Elitenetwork of Bavaria and the

    CRC TR 190 "Rationality and Competition" are gratefully acknowledged.

    Last but not least: I am greatly indebted to my family and friends who stayed by my side

    during my academic journey and supported me with encouragement, faith, and love.

    You know who you are.

    I

  • Contents

    Preface 1

    1 Complementarities of HRM Practices 7

    1.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

    1.2 Review of the Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

    1.2.1 Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

    1.2.2 Empirics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

    1.2.3 Interim Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 14

    1.3 What Can Behavioral Economics Research Contribute? . . . . . . . . . . 16

    1.3.1 Social Preferences: an Illustrative Model . . . . . . . . . . . . . . 17

    1.3.2 Other Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

    1.3.3 Interim Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 32

    1.4 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

    2 Relational Contracts and Reciprocity 35

    2.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

    2.2 Theoretical Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

    2.2.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

    2.2.2 Formal Spot Contracts . . . . . . . . . . . . . . . . . . . . . . . . 47

    2.2.3 Relational Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 49

    2.3 Predictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

    2.3.1 Effort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

    III

  • CONTENTS

    2.3.2 Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

    2.4 Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

    2.4.1 Main Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

    2.4.2 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

    2.5 Discussion & Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

    3 Contribution Sequences in Threshold Public Goods 75

    3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

    3.2 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

    3.2.1 The Influence of Institutional Changes on Public Goods Provision 79

    3.2.2 Explaining Endogenous Contribution Sequences . . . . . . . . . . 82

    3.3 Experimental Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

    3.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

    3.4.1 Descriptive Results . . . . . . . . . . . . . . . . . . . . . . . . . . 91

    3.4.2 Test of Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . 96

    3.4.3 A Closer Look at Behavioral Types . . . . . . . . . . . . . . . . . 103

    3.5 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

    3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

    4 Overconfidence, Competition Neglect, and Competition Entry 109

    4.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

    4.2 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

    4.3 Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

    4.3.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

    4.3.2 Rational Benchmark . . . . . . . . . . . . . . . . . . . . . . . . . 115

    4.3.3 Introducing Biased Beliefs . . . . . . . . . . . . . . . . . . . . . . 116

    4.4 Experimental Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

    4.4.1 Real-Effort Task . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

    4.4.2 Incentives and Reference Group . . . . . . . . . . . . . . . . . . . 120

    IV

  • CONTENTS

    4.4.3 Treatment Variations . . . . . . . . . . . . . . . . . . . . . . . . . 121

    4.4.4 Belief Elicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

    4.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

    4.5.1 Beliefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

    4.5.2 Competition Decisions . . . . . . . . . . . . . . . . . . . . . . . . 130

    4.5.3 The Effect of Pre-Treatment Belief Elicitation . . . . . . . . . . . 134

    4.6 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

    A Complementarities of HRM Practices 139

    Appendices 139

    A.1 Detailed Exposition of the Model . . . . . . . . . . . . . . . . . . . . . . 139

    A.2 Additive Formulation of Worker Type and HRM Practices . . . . . . . . . 142

    B Relational Contracts and Reciprocity 145

    B.1 Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

    B.2 Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

    C Contribution Sequences in Threshold Public Goods 159

    C.1 Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

    C.2 Factor Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

    C.3 Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

    D Overconfidence, Competition Neglect, and Competition Entry 169

    D.1 Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

    D.2 Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

    D.3 Gender Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

    D.4 Analysis of Round 4: Competition Based on Past Performance . . . . . . 180

    D.5 Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

    Bibliography 189

    V

  • List of Figures

    1.1 Residual plot of log(sales) on average management scores . . . . . . . . 13

    1.2 Illustration of the wage schemes . . . . . . . . . . . . . . . . . . . . . . . 22

    1.3 Optimal bonus dependent on η in multiplicative model . . . . . . . . . . 26

    2.1 Predictive marginal effects of positive reciprocity . . . . . . . . . . . . . 39

    2.2 Distribution of negative and positive reciprocity . . . . . . . . . . . . . . 61

    2.3 Local polynomial smooth of effort on age . . . . . . . . . . . . . . . . . . 64

    2.4 Predictive marginal effects of positive reciprocity on effort . . . . . . . . 65

    2.5 Local polynomial smooth of job satisfaction on age . . . . . . . . . . . . 69

    3.1 Individual differences, behavioral thresholds, and contribution decisions 84

    3.2 Average implementation rates by treatment . . . . . . . . . . . . . . . . 93

    3.3 Average number of contributors by treatment . . . . .