Fair Offers in a Repeated Principal-Agent Relationship with Hidden Actions

16 Pages Posted: 28 Apr 2005

See all articles by François Cochard

François Cochard

Université Louis Pasteur Strasbourg I

Marc Willinger

LAMETA, University of Montpellier 1

Abstract

We test a repeated principal-agent relationship with hidden actions in the laboratory. At each period, the principal offers payments to the agent in order to induce him to provide the high effort level. The agent can accept or reject the offer; if he accepts it, he can choose the high or the low effort level. We observe that offered payments are higher than predicted by the subgame-perfect equilibrium, and higher in the partners' than in the strangers' design. Furthermore, agents strategically reject inequitable offers in early rounds in order to induce principals to increase payments in the subsequent rounds.

Suggested Citation

Cochard, François and Willinger, Marc, Fair Offers in a Repeated Principal-Agent Relationship with Hidden Actions. Available at SSRN: https://ssrn.com/abstract=709743

François Cochard

Université Louis Pasteur Strasbourg I

61, avenue de la foret noire
4, rue Blaise Pascal
Strasbourg, Alsace 3000
France

Marc Willinger (Contact Author)

LAMETA, University of Montpellier 1 ( email )

Avenue de la Mer Site Richter
163 Rue Auguste Broussonnet
34006 Montpellier Cedex 1, Cedex 2 34090
France

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