Team Incentives and Leadership
Martin Sefton (University of Nottingham)

We study, experimentally, how two alternative incentive mechanisms affect team performance, and how a team chooses between alternative mechanisms. In our team production setting team output is either shared equally among team members or allocated by a team leader. We find that team output is higher when a leader has the power to allocate output. However, this mechanism also generates large differences between earnings of leaders and other team members. When team members can choose how much of team output is to be shared equally and how much is to be allocated by a leader, they tend to restrict the leader’s power to distributing less than half of the pie.

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The effects of voluntary participation on cooperation: entry or exit?
Daniele Nosenzo (University of Nottingham)

Individual cooperation for the provision of public goods is vital for human societies. However, individual material incentives to free-ride on others’ contributions are detrimental to cooperation, especially when reputation and punishment mechanisms are absent. We study voluntary participation to public good provision as an alternative mechanism to reputation and punishment. Voluntary participation may foster public good contributions through two distinct mechanisms. On the one hand, cooperation may increase through assortative selection of interaction partners. On the other hand, the fact that participation is voluntary gives group members the opportunity to leave the group as a mean to resist exploitation by free-riders, thus reducing the incentives to free-ride. We examine the relative effectiveness of these two mechanisms in a one-shot two-person public goods game experiment. Across three treatments we vary the extent to which subjects can voluntarily participate in the game: in a Baseline treatment subjects are forced to take part into the public goods game. In an Entry treatment, before interacting in the game, subjects choose whether or not to opt in; if at least one player does not opt in, players receive an outside option payoff. In an Exit treatment, after having interacted in the public goods game (and having learned the outcome of the interaction), players can opt out of the game and secure the outside option payoff. Our results point to the crucial relevance of the exit option over the entry one in increasing public good provision. Assortative selection of interaction partners seems to play a minor role in our setting, whereas the threat of retaliation through exits seems to be a powerful force that disciplines free-riding.