Governance Of Social Preferences And Incomplete Markets

Lots of researchs show that people's preference types are heterogeneous. Some people exhibit self-interest preference; some people have social preference. The interactions between people with different preference types have an impact on social outcomes, and which type of preference will dominate social outcomes depends on explicit institutional environment. So the design of incentive contract must take account of the existence of social preference and the interactions between self-interest preference and social preference, which are very important for us to understand people's competition and cooperation behavior and governance of contracts. The first part of this paper is a non-technical survey for recent research on competition, cooperation and contracts governance under social preference.The standard contract theory assumes that all people are self-interested, but lots of experimental and empirical researches show that people exhibit social preference, which will have an important impact on people's competition, co-operation and contracts enforcement behavior. The second part of this paper focuses on investigating the influence of social preference on governance efficiency of explicit governance structure by comparative institutional experimental approach. The experiment results argue that the explicit governance structure which is complementary with social preference will improve the governance efficiency, but the explicit governance structure which is crowding out social preference will undermine governance efficiency.Market theory is the core of economics. In New Classical Economics, all markets have perfect information conditions, complete property protection and contract enforcement system. However, with the development of neo-institutional economics and information economics, more and more researchers realize the hypothesis of complete contracting is too unrealistic, almost all market behaviors are un-contractible. In the incomplete markets, transactions never stop because of the dysfunction of formal contract enforcement system. There spontaneously evolve out many alternative market governance structures governing people's contracting behaviors. This third part of this paper focuses on the characteristics and efficiency of these alternative governance modes, based on the approach of comparative institutional experimentation.The main innovations of this paper lie in following three aspects:(1) Incorporating social preference in the studies of contract design and market governance is a new research area in the world. And there are few studies in China focusing on it. In this paper, we firstly introduce social preference into four typical types of incomplete contracts, and then into a typical incomplete market.(2) We use the behavioral game theory model the problem we study. The behavioral game theory question classic game theory in three aspects: non-standard beliefs, non-selfish preferences, and imperfect reasoning capacity. We think of non-selfish preferences in this paper, and we apply the F-S utility function to analyze our experimental results.(3) We also introduce social preference into the classic market design theory. There are no influence of social preferences in Roth(2002) and McMillan(2003)'s market design theory.