Fairness and incentives in a multi-task principal-agent model

Fehr, Ernst; Schmidt, Klaus M. (2004): Fairness and incentives in a multi-task principal-agent model. In: Scandinavian Journal of Economics, Vol. 106, No. 3: pp. 453-474

Abstract

This paper reports on a two-task principal agent experiment in which only one task is contractible. The principal can either offer a piece-rate contract or a (voluntary) bonus to the agent. Bonus contracts strongly outperform piece-rate contracts. Many principals reward high effort on both tasks with substantial bonuses. Agents anticipate this and provide high effort on both tasks, in contrast, almost all agents with a piece-rate contract focus on the first task and disregard the second. Principals understand this and predominantly offer bonus contracts. This behavior contradicts the self-interest theory but is consistent with theories of fairness.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > Seminar for Economic Theory
• Subjects: 300 Social sciences > 330 Economics
• Language: English