Logo Logo
Help
Contact
Switch Language to German

Fehr, Ernst; Klein, Alexander and Schmidt, Klaus M. ORCID logoORCID: https://orcid.org/0000-0002-5011-0828 (November 2005): Fairness and Contract Design. SFB/TR 15 Discussion Paper No. 67 [PDF, 515kB]

Warning
There is a more recent version of this item available.

Abstract

We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit incentive contracts when there are some fair-minded players. But trust contracts that pay a generous wage upfront are less efficient than incentive contracts. The principals understand this and predominantly choose the bonus contracts. Our results are consistent with recently developed theories of fairness, which offer important new insights into the interaction of contract choices, fairness and incentives.

Available Versions of this Item

Actions (login required)

View Item View Item