IDEAS home Printed from https://ideas.repec.org/p/fme/wpaper/92.html
   My bibliography  Save this paper

Contracts with interdependent preferences

Author

Listed:
  • Debraj Ray

    (New York University (NYU))

  • Marek Weretka

    (Group for Research in Applied Economics (GRAPE)
    University of Wisconsin-Madison)

Abstract

This paper studies contracting between a principal and multiple agents, as in Lazear and Rosen (1981) and Green and Stokey (1983). The setup is classical except for the assumption that agents have interdependent preferences. We characterize cost effective contracts, and relate the direction of co-movement in rewards- "joint liability" (positive) or "tournaments" (negative) – to the assumed structure of preference interdependence. WE also study the implications of preference interdependence for the principal's playoffs. We identify two asymmetries. First, the optimal contract leans towards joint liability rather than tournaments, especially in larger teams, in a sense made precise in the paper. Second, when the mechanism-design problem is augmented by robustness constraints designed to eliminate multiple equilibria, the principal may prefer teas linked via adversarial rather than altruistic preferences.

Suggested Citation

  • Debraj Ray & Marek Weretka, 2023. "Contracts with interdependent preferences," GRAPE Working Papers 92, GRAPE Group for Research in Applied Economics.
    • Handle: RePEc:fme:wpaper:92
    as

    Download full text from publisher

    File URL: https://grape.org.pl/WP/92_Ray_website.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    interdependent payoffs; joint liability; tournaments;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fme:wpaper:92. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jan Hagemejer (email available below). General contact details of provider: https://edirc.repec.org/data/grauwpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.