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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. © 2010 Elsevier Inc.
Item Type: | Journal article |
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Form of publication: | Publisher's Version |
Faculties: | Economics Economics > Chairs > Seminar for Organizational Economics |
Subjects: | 300 Social sciences > 330 Economics |
ISSN: | 0899-8256 |
Language: | English |
Item ID: | 22027 |
Date Deposited: | 01. Dec 2014, 14:55 |
Last Modified: | 04. Nov 2020, 13:02 |
Available Versions of this Item
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Optimal Incentive Contracts under Inequity Aversion. (deposited 03. Dec 2014, 13:46)
- Optimal incentive contracts under inequity aversion. (deposited 01. Dec 2014, 14:55) [Currently Displayed]