Optimal incentive contracts under inequity aversion
| Type of Publication: | Journal article |
| URI (citable link): | http://nbn-resolving.de/urn:nbn:de:bsz:352-127126 |
| Author: | Englmaier, Florian; Wambach, Achim |
| Year of publication: | 2010 |
| Published in: | Games and Economic Behavior ; 69 (2010), 2. - pp. 312-328. - ISSN 0899-8256 |
| DOI (citable link): | https://dx.doi.org/10.1016/j.geb.2009.12.007 |
| Summary: |
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.
|
| Subject (DDC): | 330 Economics |
| Keywords: | Contract theory, linear contracts, incentives, sufficient statistics result, inequity aversion, incomplete contracts |
| Link to License: | Terms of use |
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ENGLMAIER, Florian, Achim WAMBACH, 2010. Optimal incentive contracts under inequity aversion. In: Games and Economic Behavior. 69(2), pp. 312-328. ISSN 0899-8256. Available under: doi: 10.1016/j.geb.2009.12.007
@article{Englmaier2010Optim-12712, title={Optimal incentive contracts under inequity aversion}, year={2010}, doi={10.1016/j.geb.2009.12.007}, number={2}, volume={69}, issn={0899-8256}, journal={Games and Economic Behavior}, pages={312--328}, author={Englmaier, Florian and Wambach, Achim} }
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