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Fairness and incentives in a multi-task principal-agent model

  • Fehr, Ernst
  • Schmidt, Klaus M.

This paper reports on a two-task principal agent experiment in which only one task is contractible. The principal can either offer a piece-rate contract or a (voluntary) bonus to the agent. Bonus contracts strongly outperform piece-rate contracts. Many principals reward high effort on both tasks with substantial bonuses. Agents anticipate this and provide high effort on both tasks, in contrast, almost all agents with a piece-rate contract focus on the first task and disregard the second. Principals understand this and predominantly offer bonus contracts. This behavior contradicts the self-interest theory but is consistent with theories of fairness.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20657.

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Date of creation: 2004
Date of revision:
Publication status: Published in Scandinavian Journal of Economics 3 106(2004): pp. 453-474
Handle: RePEc:lmu:muenar:20657
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