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Efficient Contracting and Fair Play in a Simple Principal-Agent ExperimentVital AnderhubHumboldt University of Berlin - Faculty of Economics Simon GächterCESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA) Manfred KönigsteinUniversity of Erfurt; Institute for the Study of Labor (IZA) Experimental Economics, Forthcoming Abstract: We study behavior within a simple principal-agent experiment. Our design allows for a large class of linear contracts. Principals can offer any feasible combination of (negative) fixed wages and incentives in the form of return sharing. This great contractual flexibility allows us to study incentive compatibility simultaneously with issues of 'fair sharing' and reciprocity, which were previously found to be important. We find a high degree of incentive-compatible behavior, but also 'fair sharing' and reciprocity. In contrast to other incentive devices studied in the literature, the incentives are 'reciprocity-compatible'. Principals recognize the agency problem and react accordingly.
Keywords: Principal-agent theory, contract theory, fair sharing, incentive contracts, reciprocity, experiments JEL Classification: J33, J41, L14, C91 Accepted Paper SeriesDate posted: July 15, 2002Suggested CitationContact Information
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