Efficient contracting and fair play in a simple principal-agent experiment

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 373 Discussion Paper ; No. 1999,82

Classification and Topics

• Classification: Wirtschaft ; Compensation Packages; Payment Methods ; Labor Contracts ; Transactional Relationships; Contracts and Reputation; Networks ; Design of Experiments: Laboratory, Individual
• Subject: principal-agent theory ; contract theory ; fair sharing ; incentive contracts ; reciprocity ; experiments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Anderhub, Vital ; Gächter, Simon ; Königstein, Manfred
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes
• (where): Berlin
• (when): 1999

Further information

• Handle: http://hdl.handle.net/10419/61740
• URN: urn:nbn:de:kobv:11-10046691
• Last update: 10.03.2025, 11:43 AM CET