Fairness within Firms: The Case of One Principal and Multiple Agents

Schmalenbach Business Review (sbr), Vol. 53, April 2001

Posted: 20 Nov 2003

See all articles by Judit Kovacs

Judit Kovacs

University of Debrecen

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Manfred Königstein

University of Erfurt

Abstract

Many experimental studies report evidence of fairness in bargaining games. More recently fairness and its consequences for productive efficiency have been explored in principal-agent games, in which a single principal meets a single agent. However, in most organizations, there are usually many agents in one layer of a firm's hierarchy. Consequently, fairness considerations may be based on a comparison between layers (vertical fairness) as well as within a layer (horizontal fairness). In this paper we report an experiment in which a principal faces two agents with deterministic but unequal productivity. The experimental treatment variable is the information that one agent has about the other agent's contract offer. When work contracts are observable, the principal offers less asymmetric contracts (pay compression) than when contracts are not observable, i.e., horizontal fairness matters.

JEL Classification: C70, D20, J31

Suggested Citation

Kovacs, Judit and Güth, Werner and Königstein, Manfred, Fairness within Firms: The Case of One Principal and Multiple Agents. Schmalenbach Business Review (sbr), Vol. 53, April 2001. Available at SSRN: https://ssrn.com/abstract=304043

Judit Kovacs (Contact Author)

University of Debrecen ( email )

Böszörményi u. 138
H-4032 Debrecen, 4032
Hungary

Werner Güth

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Manfred Königstein

University of Erfurt ( email )

Internationales Buro
Nordhaeuser Str. 63
D - 99089 Erfurt
Germany

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