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Efficiency and Fairness in Revenue Sharing Contracts

Author

Listed:
  • Alexandros Karakostas

    (Coventry University)

  • Axel Sonntag

    (University of East Anglia)

  • Daniel John Zizzo

    (University of East Anglia)

Abstract

If principals are allowed to choose between a revenue sharing, a bonus and a trust contract, a large majority of experimental subjects choose the revenue sharing contract. We find that this choice is the most efficient while at the same time being fair in the Paretian sense that on average agents are not worse off than in the other contracts. Furthermore, the distribution of earnings is only mildly skewed towards the principal. We conclude that under revenue sharing contracts concerns for fairness can go in hand with the use of monetary incentives.

Suggested Citation

  • Alexandros Karakostas & Axel Sonntag & Daniel John Zizzo, 2013. "Efficiency and Fairness in Revenue Sharing Contracts," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 13-03, School of Economics, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:wcbess:13-03
    as

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    References listed on IDEAS

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    Cited by:

    1. Pelligra, Vittorio & Reggiani, Tommaso G. & Zizzo, Daniel John, 2016. "Responding to (Un)Reasonable Requests," IZA Discussion Papers 10189, Institute for the Study of Labor (IZA).
    2. Sonntag, Axel & Zizzo, Daniel John, 2017. "Accountability one step removed," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168235, Verein für Socialpolitik / German Economic Association.
    3. Karakostas, Alexandros & Zizzo, Daniel John, 2016. "Compliance and the power of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 67-80.
    4. Hoffmann, Timo, 2015. "Performance Pay, Sorting and Employers Choice:," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112968, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    efficiency; fairness; revenue sharing contract; bonus contract; trust contract; moral hazard;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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