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Title:Efficient contracting and fair play in a simple principal-agent experiment PDF Logo
Authors:Anderhub, Vital
Gächter, Simon
Königstein, Manfred
Issue Date:1999
Series/Report no.:Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1999,82
Abstract:Modern 'principal-agent theory' has made a lot of progress in proposing theoretical Solutions to agency problems. This paper contributes to a better understanding of behavior in agency situations. In particular, we provide experimental evidence on offered contracts and effort choices in a simple agency game. In line with principal-agent theory we find that in our experiments many contracts proposed by principals are 'incentive compatible' and most agents behave optimally given the terms of the contract. However, in contrast with economic predictions, we find that agents (i) reject 'unfair contracts' and that (ii) given acceptance, their effort choices are to some extent driven by reciprocity. It seems that contract design has to regard an equity constraint that has so far been neglected by contract theory. In fact, most contract offers observed in the experiment aim at fair surplus sharing.
Subjects:principal-agent theory
contract theory
fair sharing
incentive contracts
reciprocity
experiments
JEL:J33
J41
L14
C91
Persistent Identifier of the first edition:urn:nbn:de:kobv:11-10046691
Document Type:Working Paper
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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