Efficient contracting and fair play in a simple principal-agent experiment
Modern 'principal-agent theory' has made a lot of progress in proposing theoretical Solutions to agency problems. This paper contributes to a better understanding of behavior in agency situations. In particular, we provide experimental evidence on offered contracts and effort choices in a simple agency game. In line with principal-agent theory we find that in our experiments many contracts proposed by principals are 'incentive compatible' and most agents behave optimally given the terms of the contract. However, in contrast with economic predictions, we find that agents (i) reject 'unfair contracts' and that (ii) given acceptance, their effort choices are to some extent driven by reciprocity. It seems that contract design has to regard an equity constraint that has so far been neglected by contract theory. In fact, most contract offers observed in the experiment aim at fair surplus sharing.
|Date of creation:||1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.wiwi.hu-berlin.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mathewson, G Frank & Winter, Ralph A, 1985. "The Economics of Franchise Contracts," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 503-26, October.
- Nalbantian, Haig R & Schotter, Andrew, 1997.
"Productivity under Group Incentives: An Experimental Study,"
American Economic Review,
American Economic Association, vol. 87(3), pages 314-41, June.
- Nalbantian, Haig & Schotter, Andrew, 1994. "Productivity Under Group Incentives: An Experimental Study," Working Papers 94-04, C.V. Starr Center for Applied Economics, New York University.
- Sanford J Grossman & Oliver D Hart, 2001.
"An Analysis of the Principal-Agent Problem,"
Levine's Working Paper Archive
391749000000000339, David K. Levine.
- Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
- Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997.
"Reciprocity as a contract enforcement device: experimental evidence,"
ULB Institutional Repository
2013/5911, ULB -- Universite Libre de Bruxelles.
- Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
- Alston, Lee J. & Higgs, Robert, 1982. "Contractual Mix in Southern Agriculture since the Civil War: Facts, Hypotheses, and Tests," The Journal of Economic History, Cambridge University Press, vol. 42(02), pages 327-353, June.
- Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987.
"Tournaments and Piece Rates: An Experimental Study,"
Journal of Political Economy,
University of Chicago Press, vol. 95(1), pages 1-33, February.
- Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers 85-21, C.V. Starr Center for Applied Economics, New York University.
- Camerer, Colin & Babcock, Linda & Loewenstein, George & Thaler, Richard, 1996.
"Labor Supply of New York City Cab Drivers: One Day At A time,"
960, California Institute of Technology, Division of the Humanities and Social Sciences.
- Camerer, Colin, et al, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 407-41, May.
- Robert Slonim & Alvin E. Roth, 1998. "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic," Econometrica, Econometric Society, vol. 66(3), pages 569-596, May.
- Hackett, Steven C, 1993. "Incomplete Contracting: A Laboratory Experimental Analysis," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 274-97, April.
- Chisholm, Darlene C, 1997. "Profit-Sharing versus Fixed-Payment Contracts: Evidence from the Motion Pictures Industry," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 169-201, April.
- Loomes, Graham, 1998. "Probabilities vs Money: A Test of Some Fundamental Assumptions about Rational Decision Making," Economic Journal, Royal Economic Society, vol. 108(447), pages 477-89, March.
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Berg, Joyce E. & Rietz, Thomas A. & Dickhaut, John W., 2008. "On the Performance of the Lottery Procedure for Controlling Risk Preferences," Handbook of Experimental Economics Results, Elsevier.
- Chaudhuri, Ananish, 1998.
"The ratchet principle in a principal agent game with unknown costs: an experimental analysis,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 37(3), pages 291-304, November.
- Ananish Chaudhuri, 1997. "The Ratchet Principle in a Principal Agent Game with Unknown Costs: An Experimental Analysis," Departmental Working Papers 199608, Rutgers University, Department of Economics.
- Bengt Holmstrom & Paul R. Milgrom, 1985.
"Aggregation and Linearity in the Provision of Intertemporal Incentives,"
Cowles Foundation Discussion Papers
742, Cowles Foundation for Research in Economics, Yale University.
- Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
- Berg, Joyce E, et al, 1986. "Controlling Preferences for Lotteries on Units of Experimental Exchange," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 281-306, May.
- Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 2001. "Reciprocity as a Contract Enforcement Device," Levine's Working Paper Archive 563824000000000143, David K. Levine.
- Fehr, Ernst & Gachter, Simon, 1998. "Reciprocity and economics: The economic implications of Homo Reciprocans1," European Economic Review, Elsevier, vol. 42(3-5), pages 845-859, May.
- Werner Güth & Manfred Königstein & Judit Kovács & Enikõ Zala-Mezõ, 2001. "Fairness Within Firms: The Case Of One Principal And Multiple Agents," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 53(2), pages 82-101, April.
- Selten, Reinhard & Abdolkarim Sadrieh & Klaus Abbink, 1995.
"Money does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse,"
Discussion Paper Serie B
343, University of Bonn, Germany.
- Reinhard Selten & Abdolkarim Sadrieh & Klaus Abbink, 1999. "Money Does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse," Theory and Decision, Springer, vol. 46(3), pages 213-252, June.
- Werner Güth & Wolfgang Klose & Manfred Königstein & Joachim Schwalbach, 1998. "An experimental study of a dynamic principal-agent relationship," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 327-341.
When requesting a correction, please mention this item's handle: RePEc:zbw:sfb373:199982. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.