Experimental Evidence on Inequity Aversion and Self-Selection Between Incentive Contracts

Gate Working Paper No. 08-21

38 Pages Posted: 23 Jan 2009 Last revised: 15 Apr 2011

See all articles by Sabrina Teyssier

Sabrina Teyssier

University of Angers - Institute of Economic Theory and Analysis (GATE)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2008

Abstract

This paper reports on the results of an experiment testing whether the agents self-select between a competitive payment scheme and a revenue-sharing scheme depending on their inequity aversion. Average efficiency should be increased when these payment schemes are endogenously chosen by agents. We show that the choice of the competition is negatively affected by disadvantageous inequity aversion and risk aversion. In the second half of the experiment, the effect of individual preferences is indirect through the effect of past results. The self-selection of agents increases the efficiency of the competitive scheme but not that of the revenue-sharing scheme, due to a heterogeneity of behaviors.

Keywords: performance pay, incentives, self-selection, inequity aversion, competition, revenue-sharing scheme

JEL Classification: C92, D63, J31, J33, M52

Suggested Citation

Teyssier, Sabrina, Experimental Evidence on Inequity Aversion and Self-Selection Between Incentive Contracts (May 1, 2008). Gate Working Paper No. 08-21, Available at SSRN: https://ssrn.com/abstract=1331829 or http://dx.doi.org/10.2139/ssrn.1331829

Sabrina Teyssier (Contact Author)

University of Angers - Institute of Economic Theory and Analysis (GATE) ( email )

93, chemin des Mouilles
Monnaie et Finance at Lyon
69130 Ecully cedex
France

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