Applied Seminar

Marcello Sartarelli

Universidad de Alicante


Seminar 3 – 14:30


In a lab experiment we study whether experience affects entrepreneurs’ choice of the payoffs offered to employees and profits. In a stylized labour market entrepreneurs compete to hire teams of two employees by offering payoffs which depend on the effort exerted and may vary within and between teams. Entrepreneurs are selected randomly among the experimental subjects and, in the treatment group, they gain experience as their role is unchanged for the 24 experimental rounds in a session while, in the control group, they are selected every round. We find that experienced entrepreneurs offer significantly higher and more unequal payoffs, which in turn leads to higher employees’ effort and profits. Instead, these differences are smaller and not significant when we randomly increase the maximum profits which entrepreneurs with no experience can make in the control sessions. This highlights a catching-up effect driven by monetary incentives for entrepreneurs with no experience and the complexity of the relationship between experience and monetary incentives.

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