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Contract Design with Socially-Attentive Preferences

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  • Weinschenk, Philipp

Abstract

The standard agency model assumes that the agent does not care how his decisions influence others. This is a strong assumption, which we relax. We find that, although monetary incentives are effective also with sociallyattentive agents, the principal may optimally set none. This could explain the puzzle that empirically only a fraction of employees experiences monetary incentives. We also show that the principal benefits from having a socially-attentive agent and how she optimally influences her agent's preferences. Furthermore, contractibility of effort does not generally cause the implementation of the efficient effort and may harm the generated surplus. This provides an efficiency argument for regulatory boundaries on employers' control over employees and the content of employment contracts.

Suggested Citation

  • Weinschenk, Philipp, 2019. "Contract Design with Socially-Attentive Preferences," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203546, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203546
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    References listed on IDEAS

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    More about this item

    Keywords

    agency model; socially-attentive preferences; incentives;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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