Arbeitspapier

Fairness and Contract Design

We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit incentive contracts when there are some fair-minded players. But trust contracts that pay a generous wage upfront are less efficient than incentive contracts. The principals understand this and predominantly choose the bonus contracts. Our results are consistent with recently developed theories of fairness, which offer important new insights into the interaction of contract choices, fairness and incentives.

Language: Englisch

Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 67

Classification: Wirtschaft

Subject: Moral Hazard
Incentives
Bonus Contract
Trust Contract
Fairness
Inequity Aversion

Event: Geistige Schöpfung

(who): Fehr, Ernst
Klein, Alexander
Schmidt, Klaus M.

Event: Veröffentlichung

(who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)

(where): München

(when): 2005

DOI: doi:10.5282/ubm/epub.13483

Handle: http://hdl.handle.net/10419/93887

URN: urn:nbn:de:bvb:19-epub-13483-1

Last update: 10.03.2025, 11:43 AM CET

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Object type

Arbeitspapier

Associated

Fehr, Ernst
Klein, Alexander
Schmidt, Klaus M.
Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)

Time of origin

2005

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Fairness and Contract Design

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