Incentives and Contract Frames: Comment

Journal of Institutional and Theoretical Economics, Forthcoming

Posted: 10 Sep 2011

See all articles by Claudia M. Landeo

Claudia M. Landeo

University of Alberta - Department of Economics

Kathryn E. Spier

Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)

Date Written: September 9, 2011

Abstract

Principal-agent problems are pervasive in economic settings. CEOs and shareholders, lawyers and clients, manufacturers and retailers, lenders and borrowers are all examples of settings in which moral hazard problems might arise. Incentive contracts in both individual and team environments have been studied by economists (see Shavell, 1979, and Holmstrom, 1982, 1979, for seminal theoretical work; and, Prendergast, 1999, for a survey of empirical literature). Contracts that tie an agent's compensation to performance, such as conditional bonus schemes, have been proposed as a way to align the interests of agents and principals. Experimental literature from economics and social psychology suggests that the way choices are framed can affect decisions as well. Hence, contract frames might influence the effectiveness of incentive schemes. This comment first outlines seminal experimental studies on frames and describes recent work that relates the incentive contract literature with the experimental work on frames. Second, it discusses the experimental design and findings of Brooks, Stremitzer, and Tontrup's (2011) work on individual incentives and contract frames.

Keywords: Contract Frames, Incentives, Experiments

JEL Classification: C90, J33

Suggested Citation

Landeo, Claudia M. and Spier, Kathryn E., Incentives and Contract Frames: Comment (September 9, 2011). Journal of Institutional and Theoretical Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1925015

Claudia M. Landeo (Contact Author)

University of Alberta - Department of Economics ( email )

Henry Marshall Tory Building 7-25
Edmonton, Alberta T6G 2H4
Canada

HOME PAGE: http://sites.google.com/a/ualberta.ca/claudia-m-landeo-s-home-page/home

Kathryn E. Spier

Harvard University - Law School - Faculty ( email )

1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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