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Other-regarding principal and moral hazard: The single-agent case

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  • Swapnendu Banerjee
  • Mainak Sarkar

Abstract

Using the classic moral hazard problem with limited liability we characterize the optimal incentive contracts when first an other-regarding principal interacts with a self-regarding agent. The optimal contract differs considerably when the principal is ‘inequity averse’ vis-a-vis the self-regarding case. Also the agent is generally (weakly) better-off under an ‘inequity averse’ principal compared to a ‘status seeking’ principal. Then we extend our analysis and characterize the optimal contracts when both other-regarding principal and other-regarding agent interact.
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Suggested Citation

  • Swapnendu Banerjee & Mainak Sarkar, 2017. "Other-regarding principal and moral hazard: The single-agent case," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(3), pages 313-326, September.
    • Handle: RePEc:bla:ijethy:v:13:y:2017:i:3:p:313-326
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    File URL: http://hdl.handle.net/10.1111/ijet.12131
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    Cited by:

    1. Michael Krapp & Kai Sandner, 2016. "Impact of an equal pay norm on the optimal design of incentive contracts," Journal of Business Economics, Springer, vol. 86(3), pages 301-338, April.
    2. Banerjee, Swapnendu & Chakraborty, Somenath, 2023. "Optimal incentive contracts with a spiteful principal: Single agent," Mathematical Social Sciences, Elsevier, vol. 122(C), pages 29-41.
    3. Banerjee, Swapnendu & Chakraborty, Somenath, 2025. "Individual versus Team Production with Social Preferences," MPRA Paper 125933, University Library of Munich, Germany.
    4. Banerjee, Swapnendu & Chakraborty, Somenath, 2022. "Individual versus Team Production with Social Preferences," MPRA Paper 120996, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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