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Fairness and Incentives in a Multi-Task Principal-Agent Model

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  • Fehr, Ernst
  • Schmidt, Klaus M.

Abstract

This paper reports on a two-task principal-agent experiment in which only one task is contractible. The principal can either offer a piece-rate contract or a (voluntary) bonus to the agent. Bonus contracts strongly outperform piece rate contracts. Many principals reward high efforts on both tasks with substantial bonuses. Agents anticipate this and provide high efforts on both tasks. In contrast, almost all agents with a piece rate contract focus on the first task and disregard the second. Principals understand this and predominantly offer bonus contracts. This behavior contradicts the self-interest theory but is consistent with theories of fairness.

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File URL: http://epub.ub.uni-muenchen.de/335/1/Multi-Task-MunichEcon_040430.pdf
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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 335.

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Date of creation: 30 Apr 2004
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Handle: RePEc:lmu:muenec:335

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Keywords: Incentives; Moral Hazard; Multiple Tasks; Fairness; Experiments;

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  9. Gachter, Simon & Falk, Armin, 2002. " Reputation and Reciprocity: Consequences for the Labour Relation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 1-26.
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