Design a Contract! A Simple Principal-Agent Problem as a Classroom Experiment
We present a simple classroom principal-agent experiment that can effectively be used as a teaching device to introduce important concepts of organizational economics and contracting. In a first part, students take the role of a principal and design a contract that consists of a fixed payment and an incentive component. In the second part, students take the role of agents and decide on an effort level. The experiment can be used to introduce students to the concepts of efficiency, incentive compatibility, outside options and participation constraints, the Coase theorem, and fairness and reciprocity in contracting.
|Date of creation:||Apr 2006|
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- Anderhub, Vital & Gächter, Simon & Königstein, Manfred, 1999.
"Efficient contracting and fair play in a simple principal-agent experiment,"
SFB 373 Discussion Papers
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"Fairness and Retaliation: The Economics of Reciprocity,"
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American Economic Association, vol. 14(3), pages 159-181, Summer.
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- Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo Group Munich.
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- Manfred K÷nigstein, 2001. "Optimal Contracting With Boundedly Rational Agents," Homo Oeconomicus, Institute of SocioEconomics, vol. 18, pages 211-228.
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