Article ID Journal Published Year Pages File Type
5072417 Games and Economic Behavior 2010 17 Pages PDF
Abstract
We analyze the classic moral hazard problem with the additional assumption that agents are inequity averse. The presence of inequity aversion alters the structure of optimal contracts. When the concern for equity becomes more important, there is convergence towards linear sharing rules. The sufficient statistics result is violated. Depending on the environment, contracts may be either overdetermined, i.e. include non-informative performance measures, or incomplete, i.e. neglect informative performance measures. Finally, our model delivers a simple rationale for team based incentives, implying wage compression.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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