Under-Delegation in Case of Pure Moral Hazard: Evidence from the Laboratory

37 Pages Posted: 11 Jul 2014

See all articles by Eberhard Feess

Eberhard Feess

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH

Oliver Lorz

RWTH Aachen University

Markus Schramm

RWTH Aachen University

Date Written: July 11, 2014

Abstract

In case of a conflict of interest between principals and agents, laboratory experiments have demonstrated the existence of a "control premium", i.e. a willingness to accept lower expected payoffs for keeping control. We analyze delegation decisions in a pure moral hazard setting without conflicts of interest, and show that there is a pronounced tendency to under-delegation. This is in line with the literature on over-monitoring in settings with conflict of interest, and reinforces the view that a positive control premium is a widespread and robust phenomenon. Besides, we find that women are less susceptible to moral hazard, defined as the performance if working for oneself compared to working for a principal. This gender difference is not reflected in the delegation behavior of principals.

Keywords: Moral hazard, gender, control premium, delegation, principal-agent, experiment, real-effort

JEL Classification: C91, D03, D22

Suggested Citation

Feess, Eberhard and Lorz, Oliver and Schramm, Markus, Under-Delegation in Case of Pure Moral Hazard: Evidence from the Laboratory (July 11, 2014). Available at SSRN: https://ssrn.com/abstract=2464908 or http://dx.doi.org/10.2139/ssrn.2464908

Eberhard Feess (Contact Author)

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Oliver Lorz

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Markus Schramm

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

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