Inequity Version and Team Incentives
AbstractWe study optimal contracts in a simple model where employees are averse to inequity as modelled by Fehr and Schmidt (1999). A "selfish" employer can profitably exploit such preferences among its employees by offering contracts which create inequity off-equilibrium and thus, they would leave employees feeling envy or guilt when they do not meet the employer's demands. Such contracts resemble team and relative performance contracts, and thus we derive conditions under which it may be beneficial to form work teams of employees with distributional concerns who were previously working individually. Similar results are obtained for status-seeking and efficiency concerns preferences.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 677.07.
Date of creation: 15 Jan 2007
Date of revision:
Inequity aversion; team incentives; behavioral contract theory;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executives; Executive Compensation
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
- repec:ner:maastr:urn:nbn:nl:ui:27-4769 is not listed on IDEAS
- Dominique Demougin & Claude Fluet, 2003.
"Inequity Aversion in Tournament,"
CIRANO Working Papers
- Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
- Pedro Rey-Biel, 2007.
"Inequity Aversion and Team Incentives,"
319, Barcelona Graduate School of Economics.
- Edward P. Lazear & Paul Oyer, 2007.
NBER Working Papers
13480, National Bureau of Economic Research, Inc.
- Andreoni,J. & Miller,J.H., 1998.
"Analyzing choice with revealed preference : is altruism rational?,"
14, Wisconsin Madison - Social Systems.
- Andreoni, James & Miller, John H., 2008. "Analyzing Choice with Revealed Preference: Is Altruism Rational?," Handbook of Experimental Economics Results, Elsevier.
- James Andreoni & John H Miller, 2001. "Analyzing Choice with Revealed Preference: Is Altruism Rational," Levine's Working Paper Archive 563824000000000096, David K. Levine.
- Jonas Agell, 2003.
"Why are Small Firms Different? Managers’ Views,"
CESifo Working Paper Series
1076, CESifo Group Munich.
- Engelmann,Dirk & Strobel,Martin, 2002.
"Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments,"
015, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
- Dirk Engelmann & Martin Strobel, 2004. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," American Economic Review, American Economic Association, vol. 94(4), pages 857-869, September.
- Charness, Gary & Rabin, Matthew, 2001.
"Understanding Social Preferences with Simple Tests,"
Department of Economics, Working Paper Series
qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 817-869, August.
- Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
- Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA.
- Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Fehr, Ernst & Schmidt, Klaus M., 2000.
"Fairness, incentives, and contractual choices,"
European Economic Review,
Elsevier, vol. 44(4-6), pages 1057-1068, May.
- James C. Cox & Daniel Friedman & Steven Gjerstad, 2006.
"A Tractable Model of Reciprocity and Fairness,"
Experimental Economics Center Working Paper Series
2006-05, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
- James Cox & Daniel Friedman & Steven Gjerstad, 2004. "A Tractable Model of Reciprocity and Fairness," Experimental 0406001, EconWPA.
- Cox, J. & Friedman, D. & Gjerstad, S., 2006. "A Trackable Model of Reciprocity and Fairness," Purdue University Economics Working Papers 1181, Purdue University, Department of Economics.
- Antonio Cabrales & Antoni Calvó, 2002. "Social preferences and skill segregation," Economics Working Papers 629, Department of Economics and Business, Universitat Pompeu Fabra.
- Florian Englmaier & Achim Wambach, 2002.
"Contracts and Inequity Aversion,"
CESifo Working Paper Series
809, CESifo Group Munich.
- Georg Kirchsteiger & Martin Dufwenberg, 2000.
"Reciprocity and wage undercutting,"
ULB Institutional Repository
2013/5905, ULB -- Universite Libre de Bruxelles.
- Agell, Jonas & Lundborg, Per, 1995.
" Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 97(2), pages 295-307, June.
- Agell, J. & Lundborg, P., 1992. "Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Papers 1993-8, Uppsala - Working Paper Series.
- Agell, Jonas & Lundborg, Per, 1993. "Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Working Paper Series 380, Research Institute of Industrial Economics.
- Christian Grund & Dirk Sliwka, 2005.
"Envy and Compassion in Tournaments,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 14(1), pages 187-207, 03.
- Ernst Fehr & Klaus Schmidt, 2000.
"Theories of Fairness and Reciprocity – Evidence and Economic Applications,"
CESifo Working Paper Series
403, CESifo Group Munich.
- Ernst Fehr & Klaus M. Schmidt, . "Theories of Fairness and Reciprocity - Evidence and Economic Applications," IEW - Working Papers 075, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity - Evidence and Economic Applications," CEPR Discussion Papers 2703, C.E.P.R. Discussion Papers.
- Blinder, Alan S & Choi, Don H, 1990.
"A Shred of Evidence on Theories of Wage Stickiness,"
The Quarterly Journal of Economics,
MIT Press, vol. 105(4), pages 1003-15, November.
- Alan S. Blinder & Don H. Choi, 1989. "A Shred of Evidence on Theories of Wage Stickiness," NBER Working Papers 3105, National Bureau of Economic Research, Inc.
- Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
- David Masclet, 2002. "Peer Pressure in Work Teams : The effects of Inequity Aversion," Post-Print halshs-00178476, HAL.
- Steffen Huck & Pedro Rey-Biel, 2006.
"Endogenous Leadership in Teams,"
Journal of Institutional and Theoretical Economics (JITE),
Mohr Siebeck, Tübingen, vol. 162(2), pages 253-261, June.
- Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 433-46, July.
- Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
- Ma, Ching-to & Moore, John & Turnbull, Stephen, 1988. "Stopping agents from "cheating"," Journal of Economic Theory, Elsevier, vol. 46(2), pages 355-372, December.
- Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
- Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics 14, University of Munich, Department of Economics.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xavier Vila).
If references are entirely missing, you can add them using this form.