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Moral Hazard and Clear Conscience

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  • Topi Miettinen

Abstract

The paper studies theoretically how the optimal contract in the hidden-action moral-hazard model is affected when an agent feels bad when not reaching a target effort set in the contract. In equilibrium, the agent's effort falls short of the target, inducing guilt, which must be compensated by a higher financial reward. Thus, although the principal's payoff is higher, the agent receives a part of the monetary rents accruing to intrinsic motivation. This result differs markedly from previous contributions on contracting under social preference or pro-social motivation.

Suggested Citation

  • Topi Miettinen, 2011. "Moral Hazard and Clear Conscience," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(2), pages 224-235, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201106)167:2_224:mhacc_2.0.tx_2-c
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    References listed on IDEAS

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    Cited by:

    1. Dijk, Oege & Holmén, Martin, 2017. "Charity, incentives, and performance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 119-128.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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