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The impact of envy on relational employment contracts

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Author Info

  • Kragl, Jenny
  • Schmid, Julia

Abstract

We study the effects of envy on relational employment contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which reflects an agent's individual contribution to firm value. Both agents exhibit horizontal disadvantageous inequity aversion. In contrast to the literature, we find that inequity aversion may be beneficial; in the presence of envy, for a certain range of interest rates, relational contracts may be more profitable. For some interest rates reputational equilibria exist only with envious agents.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 72 (2009)
Issue (Month): 2 (November)
Pages: 766-779

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Handle: RePEc:eee:jeborg:v:72:y:2009:i:2:p:766-779

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

Related research

Keywords: Principal-agent Relational contract Inequity aversion Envy;

References

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Citations

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Cited by:
  1. Gürtler, Marc & Gürtler, Oliver, 2011. "Inequality aversion and externalities," Working Papers IF36V1, Technische Universität Braunschweig, Institute of Finance.
  2. Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
  3. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, vol. 114(2), pages 178-181.
  4. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
  5. Budde, Jörg & Kräkel, Matthias, 2008. "Limited Liability and the Risk-Incentive Relationship," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 232, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Florian Baumann & Tim Friehe, 2012. "Emotions in litigation contests," Economics of Governance, Springer, vol. 13(3), pages 195-215, September.
  7. Kragl, Jenny & Gogova, Martina, 2013. "Wage Bargaining when Workers Have Fairness Concerns," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79790, Verein für Socialpolitik / German Economic Association.

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