Fairness and Incentives in a Multi-Task Principal-Agent Model

Fehr, Ernst and Schmidt, Klaus M. (30. April 2004): Fairness and Incentives in a Multi-Task Principal-Agent Model. Discussion Papers in Economics 2004-8 Scandinavian Journal of Economics, 106

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 efforts on both tasks with substantial bonuses. Agents anticipate this and provide high efforts 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: Paper
• Keywords: Incentives; Moral Hazard; Multiple Tasks; Fairness; Experiments
• Faculties: Economics; Economics > Munich Discussion Papers in Economics; Economics > Munich Discussion Papers in Economics > Micro-Economics; Economics > Munich Discussion Papers in Economics > Labor; Economics > Munich Discussion Papers in Economics > Economics of Information; Economics > Munich Discussion Papers in Economics > Behavioral Economics; Economics > Munich Discussion Papers in Economics > Game Theory; Economics > Chairs > Seminar for Economic Theory
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: C7, C9, J3
• Language: English