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Splitting leagues: promotion and demotion in contribution-based regrouping experiments

Published online by Cambridge University Press:  14 March 2025

Susana Cabrera ,
Enrique Fatás ,
Juan A. Lacomba  and
Tibor Neugebauer
Susana Cabrera*
Affiliation:
University of Málaga, Málaga, Spain
Enrique Fatás*
Affiliation:
University of East Anglia, Norwich, UK
Juan A. Lacomba*
Affiliation:
GLOBE, University of Granada, Granada, Spain
Tibor Neugebauer*
Affiliation:
LSF, University of Luxembourg, Luxembourg, Luxembourg
*
e-mail: [email protected]
e-mail: [email protected]
e-mail: [email protected]
e-mail: [email protected]
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Abstract

The paper reports an experimental study on a promotion-demotion mechanism to mitigate the free-rider problem in a voluntary contribution setting. The mechanism hierarchically splits a group in two; we refer to one subgroup as the Major league and to the other as the minor league. The most cooperative subject of the minor league is switched with the least cooperative subject in the Major league. The results reveal a significant increase of cooperation levels in both leagues relative to the standard voluntary contribution mechanism. We argue that a lack of sequentially-rational beliefs about continuation payoffs in Major and minor leagues leads to higher equilibrium contributions. The data suggest beyond that, the promotion-demotion mechanism regroups subjects deliberately according to their cooperativeness.

Keywords

ExperimentGroup incentivesOrganization design

JEL classification

H41: Public Goods J4: Particular Labor Markets J33: Compensation Packages • Payment Methods C92: Laboratory, Group Behavior
Type
Original Paper
Information
Experimental Economics , Volume 16 , Issue 3 , September 2013 , pp. 426 - 441
Copyright
Copyright © 2012 Economic Science Association

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Footnotes

Electronic Supplementary Material The online version of this article (doi:https://doi.org/10.1007/s10683-012-9346-4) contains supplementary material, which is available to authorized users.

We thank Jacob Goeree, two anonymous referees and seminar participants at Tucson and Magdeburg for helpful comments. Financial support from the Spanish Ministry of Education and Science (ECO2010-20584), Generalitat Valenciana (PROMETEO/2009/068) and Junta de Andalucíia (P07-SEJ-3261) is gratefully acknowledged. An earlier title of the paper has been “Vertically Splitting a Firm: Promotion and Relegation in a Team Production Experiment”.

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