Efficiency and Fairness in Revenue Sharing Contracts
19 Pages Posted: 13 Apr 2013
Date Written: April 11, 2013
Abstract
If principals are allowed to choose between a revenue sharing, a bonus and a trust contract, a large majority of experimental subjects choose the revenue sharing contract. We find that this choice is the most efficient while at the same time being fair in the Paretian sense that on average agents are not worse off than in the other contracts. Furthermore, the distribution of earnings is only mildly skewed towards the principal. We conclude that under revenue sharing contracts concerns for fairness can go in hand with the use of monetary incentives.
Keywords: efficiency, fairness, revenue sharing contract, bonus contract, trust contract, moral hazard
JEL Classification: C91, J41, M52
Suggested Citation: Suggested Citation
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