Efficient contracting and fair play in a simple principal-agent experiment

V Anderhub, S Gächter, M Königstein - Experimental Economics, 2002 - Springer
Experimental Economics, 2002Springer
We study behavior within a simple principal-agent experiment. Our design allows for a large
class of linear contracts. Principals can offer any feasible combination of (negative) fixed
wages and incentives in the form of return sharing. This great contractual flexibility allows us
to study incentive compatibility simultaneously with issues of'fair sharing'and reciprocity,
which were previously found to be important. We find a high degree of incentive-compatible
behavior, but also'fair sharing'and reciprocity. In contrast to other incentive devices studied …
Abstract
We study behavior within a simple principal-agent experiment. Our design allows for a large class of linear contracts. Principals can offer any feasible combination of (negative) fixed wages and incentives in the form of return sharing. This great contractual flexibility allows us to study incentive compatibility simultaneously with issues of 'fair sharing' and reciprocity, which were previously found to be important. We find a high degree of incentive-compatible behavior, but also 'fair sharing' and reciprocity. In contrast to other incentive devices studied in the literature, the incentives are 'reciprocity-compatible'. Principals recognize the agency problem and react accordingly.
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