Care provision: An experimental investigation

In many principal-agent settings, the effort provided by the agent benefits a third party. In these settings, the quality of the work is determined, at least in part, by pro-social motivations. We present lab experiments that utilize a new three-player trust game to examine one such setting, care provision. Players include a principal, an agent, and a needy recipient. The principal can transfer resources to an agent, who then can transfer resources to the needy recipient; the latter transfers are tripled. As in the two-player version, we find high, but variable, levels of trust and reciprocity (agent transfers to target) in the baseline game. Two treatments allow us to gauge the impact of potential policy interventions to enhance care of the target recipient. The first provides a budget subsidy to the principle, and the second alters the effectiveness (multiplier) of the agent’s transfers. Results show that the behavior of the agent does not vary by treatment, and is determined primarily by the amount received from the principal. Principals, on the other hand, do respond to the policy changes. While budget subsidies increase the expenditure of the principal only slightly, policies impacting the agent’s efficiency increase the amount entrusted to them by principals and significantly impact the well-being of the recipient. Results suggest that policies that increase the effectiveness of care workers (the agents) may significantly impact the quality of work provided. Examples of such policies include increased worker training and reductions in red tape.