We experimentally investigate a repeated “inspection game” where, in the stage game, an employee can either work or shirk and an employer simultaneously chooses to inspect or not inspect. The unique equilibrium of the stage game is in mixed strategies with positive probabilities of shirking/inspecting while combined payoffs are maximized when the employee works and the employer does not inspect. We examine the effects of allowing the employer discretion to sanction or reward the employee after observing stage game payoffs. When employers have limited discretion, and can only apply sanctions and/or rewards following an inspection, we find that both instruments are equally effective in reducing shirking and increasing joint earnings. When employers have discretion to reward and/or sanction independently of whether they inspect, we find that rewards are more effective than sanctions. In treatments where employers can combine sanctions and rewards, employers rely mainly on rewards, and outcomes closely resemble those of treatments where only rewards are possible.This network project brings together economists, psychologists, computer and complexity scientists from three leading centres for behavioural social science at Nottingham, Warwick and UEA. This group will lead a research programme with two broad objectives: to develop and test cross-disciplinary models of human behaviour and behaviour change; to draw out their implications for the formulation and evaluation of public policy. Foundational research will focus on three inter-related themes: understanding individual behaviour and behaviour change; understanding social and interactive behaviour; rethinking the foundations of policy analysis. The project will explore implications of the basic science for policy via a series of applied projects connecting naturally with the three themes. These will include: the determinants of consumer credit behaviour; the formation of social values; strategies for evaluation of policies affecting health and safety. The research will integrate theoretical perspectives from multiple disciplines and utilise a wide range of complementary methodologies including: theoretical modeling of individuals, groups and complex systems; conceptual analysis; lab and field experiments; analysis of large data sets. The Network will promote high quality cross-disciplinary research and serve as a policy forum for understanding behaviour and behaviour change.
The computerized experiments were carried out at the University of Nottingham with 178 subjects recruited from a campus-wide distribution list.6 No subject participated in more than one session. Three sessions were conducted for each of five treatments, with either five or six pairs of participants in a session.
