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Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment

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  • Vital Anderhub
  • Simon Gaechter
  • Manfred Koenigstein

Abstract

We study behavior within a simple principal--agent experiment. Our design allows for a large class of linear contracts. Principals can offer any feasible combination of (negative) fixed wages and incentives in the form of return sharing. This great contractual flexibility allows us to study incentive compatibility simultaneously with issues of `fair sharing' and reciprocity, which were previously found to be important. We find a high degree of incentive-compatible behavior, but also `fair sharing' and reciprocity. In contrast to other incentive devices studied in the literature, the incentives are `reciprocity-compatible'. Principals recognize the agency problem and react accordingly.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 018.

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Handle: RePEc:zur:iewwpx:018

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Keywords: Principal-agent theory; contract theory; fair sharing; incentive contracts; reciprocity; experiments;

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