Gaining Experience as Principal or Agent. An Experimental Study

We study experimentally whether decisions in a principal-agent model differ when subjects gain experience by changing roles rather being in a fixed role over time. In addition, we examine whether increasing principals’ profit opportunities has an impact on their decisions. To this aim, we use a stylised labour market where multiple principals compete to hire teams of two agents by offering wage contracts and claiming residual profits after paying agents. Players’ roles, either assigned randomly every round or fixed, and principals’ profit opportunities, either high or low, vary in a between-subject design. We find that both changing roles and facing high profit opportunities leads principals to offer more frequently efficient contracts in inducing both agents to put effort and to higher payoffs for everyone, with some complementarity between role changes and profit opportunities.