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Task assignment under agent loss aversion

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  • Daido, Kohei
  • Morita, Kimiyuki
  • Murooka, Takeshi
  • Ogawa, Hiromasa

Abstract

We analyze a task-assignment model in which a principal assigns a task to one of two agents depending on future states. If the agents have concave utility, the principal assigns the task to them contingent on the state. We show that if the agents are loss averse, a state-independent assignment–assigning the task to a single agent in all states–can be optimal even when the principal can write a contingent contract at no cost.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 121 (2013)
Issue (Month): 1 ()
Pages: 35-38

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Handle: RePEc:eee:ecolet:v:121:y:2013:i:1:p:35-38

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Task assignment; Loss aversion; Reference-dependent preferences; State-independent assignment;

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References

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  1. Botond Koszegi & Matthew Rabin, 2005. "A Model of Reference-Dependent Preferences," Levine's Bibliography 784828000000000341, UCLA Department of Economics.
  2. Oliver Hart & John Moore, 2008. "Contracts as Reference Points," The Quarterly Journal of Economics, MIT Press, vol. 123(1), pages 1-48, 02.
  3. Ernst Fehr & Oliver Hart & Christian Zehnder, 2008. "Contracts as reference points – experimental evidence," IEW - Working Papers 393, Institute for Empirical Research in Economics - University of Zurich.
  4. Herweg, Fabian & Mierendorff, Konrad, 2013. "Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs," Munich Reprints in Economics 19420, University of Munich, Department of Economics.
  5. Fabian Herweg & Daniel Muller & Philipp Weinschenk, 2010. "Binary Payment Schemes: Moral Hazard and Loss Aversion," American Economic Review, American Economic Association, vol. 100(5), pages 2451-77, December.
  6. Mukerji, Sujoy, 1998. "Ambiguity Aversion and Incompleteness of Contractual Form," American Economic Review, American Economic Association, vol. 88(5), pages 1207-31, December.
  7. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  8. Tirole, Jean, 2008. "Cognition and Incomplete Contracts," IDEI Working Papers 453, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Botond Kőszegi & Paul Heidhues, 2008. "Competition and Price Variation When Consumers Are Loss Averse," American Economic Review, American Economic Association, vol. 98(4), pages 1245-68, September.
  10. Gill, David & Stone, Rebecca, 2010. "Fairness and Desert in Tournaments," MPRA Paper 21322, University Library of Munich, Germany.
  11. Heidhues, Paul & Köszegi, Botond, 2005. "The Impact of Consumer Loss Aversion on Pricing," CEPR Discussion Papers 4849, C.E.P.R. Discussion Papers.
  12. Kohei Daido & Hideshi Itoh, 2007. "The Pygmalion and Galatea Effects: An Agency Model with Reference-Dependent Preferences and Applications to Self-Fulfilling Prophecy," Discussion Paper Series 35, School of Economics, Kwansei Gakuin University, revised Sep 2007.
  13. Fabian Herweg, 2010. "Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs," Bonn Econ Discussion Papers bgse14_2010, University of Bonn, Germany.
  14. Botond Koszegi & Matthew Rabin, 2007. "Reference-Dependent Risk Attitudes," American Economic Review, American Economic Association, vol. 97(4), pages 1047-1073, September.
  15. Fabian Herweg & Klaus Schmidt, 2012. "Loss Aversion and Ex Post Inefficient Renegotiation," CESifo Working Paper Series 4031, CESifo Group Munich.
  16. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  17. Kohei Daido & Takeshi Murooka, 2011. "Team Incentives and Reference-Dependent Preferences," Discussion Paper Series 70, School of Economics, Kwansei Gakuin University, revised May 2011.
  18. Herweg, Fabian & Müller, Daniel & Weinschenk, Philipp, 2010. "Binary payment schemes: Moral hazard and loss aversion," Munich Reprints in Economics 19450, University of Munich, Department of Economics.
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