Efficiency and Fairness in Revenue Sharing Contracts

19 Pages Posted: 13 Apr 2013

See all articles by Alexandros Karakostas

Alexandros Karakostas

University of Queensland

Axel Sonntag

University of Vienna - Vienna Center for Experimental Economics

Daniel John Zizzo

University of Queensland - School of Economics

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

Karakostas, Alexandros and Sonntag, Axel and Zizzo, Daniel John, Efficiency and Fairness in Revenue Sharing Contracts (April 11, 2013). Available at SSRN: https://ssrn.com/abstract=2248927 or http://dx.doi.org/10.2139/ssrn.2248927

Alexandros Karakostas

University of Queensland ( email )

Brisbane, QLD 4072
Australia

Axel Sonntag

University of Vienna - Vienna Center for Experimental Economics ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1090
Austria

Daniel John Zizzo (Contact Author)

University of Queensland - School of Economics ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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