AbstractIn this paper we present an axiomatic approach to characterize the optimal contracts, which we call gfair contracts,h in the general moral hazard model. The two main axioms we employ are incentive efficiency and no-envyness. The incentive efficiency requires that agents of organization select the Pareto efficient contracts among all possible incentive compatible contracts. No-envyness is equity requirement to ensure that each agent does not envy contracts of others in the same organization. We then show that, due to the tension between incentive efficiency and no-envyness, fair contracts have the very simple feature that risk averse agents are offered the fixed wage to choose only the least costly action.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 11-30.
Length: 47 pages
Date of creation: Nov 2011
Date of revision:
Moral Hazard; Incentive Contracts; Fairness.;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-BEC-2011-11-28 (Business Economics)
- NEP-CTA-2011-11-28 (Contract Theory & Applications)
- NEP-GTH-2011-11-28 (Game Theory)
- NEP-MIC-2011-11-28 (Microeconomics)
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.:
- Florian Englmaier & Achim Wambach, 2002.
"Contracts and Inequity Aversion,"
CESifo Working Paper Series
809, CESifo Group Munich.
- Pedro Rey-Biel, 2007.
"Inequity Aversion and Team Incentives,"
319, Barcelona Graduate School of Economics.
- William Thomson, 2007. "Fair Allocation Rules," RCER Working Papers 539, University of Rochester - Center for Economic Research (RCER).
- Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
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