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Efficiency and Fairness in Revenue Sharing Contracts

  • Alexandros Karakostas

    (Coventry University)

  • Axel Sonntag

    (University of East Anglia)

  • Daniel John Zizzo

    (University of East Anglia)

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.

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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) with number 13-03.

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Date of creation: 2013
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Handle: RePEc:uea:wcbess:13-03
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