Abstract:We study how different payment modes influence the effectiveness of gift exchange as a contract enforcement device. In particular, we analyze how equal wages affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference is instead driven by the fact that the norm of equity is violated far more frequently in the equal wage treatment. Agents care about how they are treated relative to each other. After having suffered from violations of the equity principle, they withdraw effort. These findings hold even after controlling for the role of intentions, as we show in a third treatment. Our results suggest that adherence to the norm of equity is a necessary prerequisite for successful establishment of gift-exchange relations.JEL classification: J33, D63, M52, C92, J41.

People interested in the research are advised to contact the author for the final version of the publication, or visit the DOI to the publisher's website. • The final author version and the galley proof are versions of the publication after peer review. • The final published version features the final layout of the paper including the volume, issue and page numbers. Link to publication General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal. If the publication is distributed under the terms of Article 25fa of the Dutch Copyright Act, indicated by the "Taverne" license above, please follow below link for the End User Agreement:

Lying is a pervasive phenomenon with important social and economic implications. However, despite substantial interest in the prevalence and determinants of lying, little is known about its biological foundations. Here we study a potential hormonal influence, focusing on the steroid hormone testosterone, which has been shown to play an important role in social behavior. In a double-blind placebo-controlled study, 91 healthy men (24.32±2.73 years) received a transdermal administration of 50 mg of testosterone (n = 46) or a placebo (n = 45). Subsequently, subjects participated in a simple task, in which their payoff depended on the self-reported outcome of a die-roll. Subjects could increase their payoff by lying without fear of being caught. Our results show that testosterone administration substantially decreases lying in men. Self-serving lying occurred in both groups, however, reported payoffs were significantly lower in the testosterone group (p<0.01). Our results contribute to the recent debate on the effect of testosterone on prosocial behavior and its underlying channels.

Promotions and Incentives: The Case of Multi-Stage Elimination Tournaments * Promotion tournaments play an important role for the provision of incentives in firms. In this paper, we extend research on single-stage rank-order tournaments and analyze behavior in multi-stage elimination tournaments. The main treatment of our laboratory experiment is a two-stage tournament in which equilibrium efforts are the same in both stages. We compare this treatment to a strategically equivalent one-stage tournament and to another two-stage tournament with a more convex wage structure. Confirming previous findings average effort in our one-stage treatment is close to Nash equilibrium. In contrast, subjects in our main treatment provide excess effort in the first stage both with respect to Nash predictions and compared to the equivalent one-stage tournament. The results for the more convex twostage tournament show that excess effort in the first stage is a robust finding and that subjects react only weakly to differences in the wage structure.