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Bonus and Malus in Principal-Agent Relations with Fixed Pay and Real Effort

Author

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  • Annette Kirstein

Abstract

Drawing on the proposer-responder game examined by Andreoni, Harbaugh, and Vesterlund (2003), I experimentally test four variations of a principal-agent relationship with fixed pay and real effort. Depending on the treatment, the principal can voluntarily, but at her own expense, (1) only reward her agent, (2) only punish her agent, (3) either reward or punish her agent, or (4) neither reward nor punish her agent. Compared to Andreoni et al., I find substantially higher investments in reward, about the same expenses for punishment, and no significant difference among the four treatments regarding output levels. I attribute these findings to the real effort aspect of the experimental design.

Suggested Citation

  • Annette Kirstein, 2008. "Bonus and Malus in Principal-Agent Relations with Fixed Pay and Real Effort," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 60(3), pages 280-303, July.
  • Handle: RePEc:sbr:abstra:v:60:y:2008:i:3:p:280-303
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    Cited by:

    1. Seeun Jung & Radu Vranceanu, 2015. "Gender Interaction in Teams: Experimental Evidence on Performance and Punishment Behavior," PSE Working Papers hal-01171161, HAL.
    2. Vranceanu, Radu & El Ouardighi, Fouad & Dubart , Delphine, 2013. "Coordination in Teams: A Real Effort-task Experiment with Informal Punishment," ESSEC Working Papers WP1310, ESSEC Research Center, ESSEC Business School.
    3. Seeun Jung & Radu Vranceanu, 2015. "Gender Interaction in Teams: Experimental Evidence on Performance and Punishment Behavior," Working Papers hal-01171161, HAL.

    More about this item

    Keywords

    Experiments; Fixed Wage; Moral Hazard; Principal-Agent Theory; Real Effort; Reward; Punishment;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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