Moral Hazard and Clear Conscience
AbstractThe paper studies theoretically how the optimal contract in the hidden-action moral-hazard model is affected when an agent feels bad when not reaching a target effort set in the contract. In equilibrium, the agent's effort falls short of the target, inducing guilt, which must be compensated by a higher financial reward. Thus, although the principal's payoff is higher, the agent receives a part of the monetary rents accruing to intrinsic motivation. This result differs markedly from previous contributions on contracting under social preference or pro-social motivation.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 167 (2011)
Issue (Month): 2 (June)
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Other versions of this item:
- Topi Miettinen, 2007. "Moral Hazard and Clear Conscience," Jena Economic Research Papers 2007-008, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Miettinen, Topi, 2009. "Moral Hazard and Clear Conscience," SITE Working Paper Series 4, Stockholm Institute of Transition Economics, Stockholm School of Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
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