Download This PaperOther-Regarding Principal and Moral Hazard
12 Pages Posted: 16 Jul 2013
Date Written: July 10, 2013
Abstract
Using the classic moral hazard problem with limited liability we characterize the optimal contracts when an other-regarding principal interacts with a self-regarding agent. The optimal contract differs considerably when the principal is ‘inequity averse’ vis-a-vis the self-regarding case. Also the agent is generally (weakly) better-off under an ‘inequity- averse’ principal compared to a ‘status seeking’ principal.
Keywords: other regarding preferences, self regarding preferences, inequity-averse, status- seeking, optimal contract
JEL Classification: D86, D63, M52
Suggested Citation: Suggested Citation
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