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Fairness Within Firms: The Case Of One Principal And Multiple Agents

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Author Info
Werner Güth
Manfred Königstein
Judit Kovács
Enikõ Zala-Mezõ
Abstract

Many experimental studies report evidence of fairness in bargaining games. More recently fairness and its consequences for productive efficiency have been explored in principal agent games, in which a single principal meets a single agent. However, in most organizations, there are usually many agents in one layer of a firm’s hierarchy. Consequently, fairness considerations may be based on a comparison between layers (vertical fairness) as well as within a layer (horizontal fairness). In this paper we report an experiment in which a principal faces two agents with deterministic but unequal productivity. The experimental treatment variable is the information that one agent has about the other agent’s contract offer. When work contracts are observable, the principal offers less asymmetric contracts (pay compression) than when contracts are not observable, i.e., horizontal fairness matters.

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Publisher Info
Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

Volume (Year): 53 (2001)
Issue (Month): 2 (April)
Pages: 82-101
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Handle: RePEc:sbr:abstra:v:53:y:2001:i:2:p:82-101

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Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
D20 - Microeconomics - - Production and Organizations - - - General
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. Gary Charness & Antonio Cabrales, 2008. "Optimal Contracts With Team Production And Hidden Information: An Experiment," University of California at Santa Barbara, Economics Working Paper Series 12-08, Department of Economics, UC Santa Barbara. [Downloadable!]
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  2. Ernst Fehr & Alexander Klein & Klaus Schmidt, 2004. "Contracts, Fairness, and Incentives," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Christian Grund & Niels Westergaard-Nielsen, 2005. "The Dispersion of Employees' Wage Increases and Firm Performance," Bonn Econ Discussion Papers bgse3_2005, University of Bonn, Germany. [Downloadable!]
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  4. Andrew Clark & Davis Masclet & Marie-Claire Villeval, 2006. "Effort and Comparison Income : Survey and Experimental Evidence," Working Papers 0601, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
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  5. Ernst Fehr & Alexander Klein & Klaus M. Schmidt, 2005. "Fairness and Contract Design," Discussion Papers 67, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  6. Christine Harbring & Bernd Irlenbusch, 2005. "How Many Winners Are Good to Have? On Tournaments with Sabotage," IZA Discussion Papers 1777, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Andrew E. Clark & David Masclet & Marie-Claire Villeval, 2006. "Effort and Comparison Income: Experimental and Survey Evidence," IZA Discussion Papers 2169, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Susanne Büchner & Luis Gonzalez & Werner Güth & M. Vittoria Levati, . "Incentive Contracts versus Trust in Three-Person Ultimatum Games - An Experimental Study," Papers on Strategic Interaction 2002-20, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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  9. Claude Montmarquette & Jean-Louis Rullière & Marie-Claire Villeval & Romain Zeiliger, 2002. "Redesigning Teams and Incentives: A Real Effort Experiment with Managers of a Merged Company," CIRANO Working Papers 2002s-86, CIRANO. [Downloadable!]
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  10. Claude Meidinger & Jean-Louis Rullière & Marie-Claire Villeval, 2003. "Does Team-Based Compensation Give Rise to Problems When Agents Vary in Their Ability?," Experimental Economics, Springer, vol. 6(3), pages 253-272, November. [Downloadable!] (restricted)
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  11. Maria Fernanda Rivas & Matthias Sutter, . "Wage dispersion and workers’ effort," Working Papers 2008-15, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
  12. Vital Anderhub & Simon Gächter & Manfred Königstein, 2002. "Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment," Experimental Economics, Springer, vol. 5(1), pages 5-27, June. [Downloadable!] (restricted)
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  13. Ernst Fehr & Klaus M. Schmidt, . "Fairness and Incentives in a Multi-Task Principal-Agent Model," IEW - Working Papers iewwp191, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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