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Title:Optimal incentive contracts under inequity aversion PDF Logo
Authors:Englmaier, Florian
Wambach, Achim
Issue Date:2005
Series/Report no.:IZA Discussion Papers 1643
Abstract:We analyze the Moral Hazard problem, assuming that agents are inequity averse. Our results differ from conventional contract theory and are more in line with empirical findings than standard results. We find: First, inequity aversion alters the structure of optimal contracts. Second, there is a strong tendency towards linear sharing rules. Third, it delivers a simple rationale for team based incentives in many environments. Fourth, the Sufficient Statistics Result is violated. Dependent on the environment, optimal contracts may be either overdetermined or incomplete.
Subjects:contract theory
linear contracts
incentives
sufficient statistics result
inequity aversion
incomplete contracts
JEL:D23
D63
J31
J33
M12
Z13
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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