Productive and Unproductive Effort Choices in Groups and Sharing: An Experimental Study

Abstract

Agents in collaborative relationships (e.g., business partnership and co-authorship) frequently need to decide on the allocation of limited resources (e.g., time and money) to productive activities that increase the size of the joint surplus and unproductive, promotional activities that do not affect the size of the surplus but increase their (individual) likelihood of capturing a greater control/share of the surplus. Using a laboratory experiment, we first analyze the effect of the opportunity cost of unproductive investment on subjects' resource allocation decisions in the first stage. Second, we study whether (i) the opportunity cost of unproductive investment and (ii) the identity of the decision-maker (human or computer) affect subjects' distributive decisions in the second stage. Three main insights emerge from our experiment: First, we find that subjects choose productive and unproductive investments equally likely both in low and high opportunity cost treatments. Second, subjects give less to their matched pairs if they choose unproductive investment in human treatment but not in computer treatment that suggests that subjects punish (by giving less) their matched pairs for allocating more resources to unproductive, promotional activities, a behavior that is not present when the allocation decision is made by a computer.