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Team Incentives under Moral and Altruistic Preferences: Which Team to Choose?

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  • Sarkisian, Roberto

Abstract

This paper studies incentives provision when agents are characterized either by homo moralis preferences (Alger and Weibull, 2013, 2016), i.e. their utility is represented by a convex combination of selfish preferences and Kantian morality, or by altruism. In a moral hazard in teams setting with two agents whose efforts affect output stochastically, I demonstrate that the power of extrinsic incentives decreases with the degrees of morality and altruism displayed by the agents, thus leading to increased profits for the principal. I also show that a team of moral agents will only be preferred if the production technology exhibits decreasing returns to efforts, the probability of a high realization of output conditional on both agents exerting effort is suficiently high and either the outside option for the agents is zero or the degree of morality is suficiently low.

Suggested Citation

  • Sarkisian, Roberto, 2017. "Team Incentives under Moral and Altruistic Preferences: Which Team to Choose?," TSE Working Papers 17-838, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:31966
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    References listed on IDEAS

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    1. Pedro Rey-Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    2. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 917-962.
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    5. Luca Livio, 2018. "Friends or Foes? Optimal Incentives for Reciprocal Agents," Working Papers ECARES 2018-03, ULB -- Universite Libre de Bruxelles.
    6. Englmaier, Florian & Muehlheusser, Gerd & Roider, Andreas, 2010. "Optimal Incentive Contracts under Moral Hazard When the Agent Is Free to Leave," IZA Discussion Papers 5027, Institute for the Study of Labor (IZA).
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    11. Martin Dufwenberg & Paul Heidhues & Georg Kirchsteiger & Frank Riedel & Joel Sobel, 2011. "Other-Regarding Preferences in General Equilibrium," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 613-639.
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    Cited by:

    1. repec:gam:jgames:v:9:y:2018:i:2:p:20-:d:143407 is not listed on IDEAS
    2. Ingela Alger & Jörgen W. Weibull, 2017. "Strategic Behavior of Moralists and Altruists," Games, MDPI, Open Access Journal, vol. 8(3), pages 1-21, September.

    More about this item

    Keywords

    Moral hazard in teams; optimal contracts; homo moralis preferences; altruism;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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