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Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment

Institute for Empirical Research in Economics Working Paper No. 18

42 Pages Posted: 20 Feb 2000  

Vital Anderhub

Humboldt University of Berlin - Faculty of Economics

Simon Gächter

CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Manfred Königstein

University of Erfurt

Multiple version iconThere are 2 versions of this paper

Date Written: October 2001

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

Suggested Citation

Anderhub, Vital and Gächter, Simon and Königstein, Manfred, Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment (October 2001). Institute for Empirical Research in Economics Working Paper No. 18. Available at SSRN: https://ssrn.com/abstract=203290 or http://dx.doi.org/10.2139/ssrn.203290

Vital Anderhub

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
D-10178 Berlin
Germany

Simon Gächter (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Manfred Königstein

University of Erfurt ( email )

Internationales Buro
Nordhaeuser Str. 63
D - 99089 Erfurt
Germany

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