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Abstract

This paper analyzes implications of dynamic social preferences in a simple multiagent moral hazard model. The basic assumption is that social (other-regarding) preferences, such as shame and compassion, is a function of previously offered incentive schemes. I show that it may be optimal to offer incentives based on relative performance evaluation (RPE) in both periods in the dynamic (two-period) setting, even if team incentives, i.e. joint performance evaluation (JPE) is optimal in the static setting, and vice versa. The model also suggests that dynamic preferences promote the use of JPE or RPE at the expense of independent performance evaluation (IPE) if the principal cannot use IPE to boost social preferences.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 31 (2010)
Issue (Month): 4 (August)
Pages: 698-704

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Handle: RePEc:eee:joepsy:v:31:y:2010:i:4:p:698-704

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

Related research

Keywords: Performance pay Multiagent moral hazard Social preferences;

References

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17. repec:feb:natura:0014 is not listed on IDEAS
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