Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104143
Authors: 
Fehr, Ernst
Schmidt, Klaus M.
Year of Publication: 
2004
Series/Report no.: 
Munich Discussion Paper 2004-8
Abstract: 
This paper reports on a two-task principal-agent experiment in which only one task is contractible. The principal can either offer a piece-rate contract or a (voluntary) bonus to the agent. Bonus contracts strongly outperform piece rate contracts. Many principals reward high efforts on both tasks with substantial bonuses. Agents anticipate this and provide high efforts on both tasks. In contrast, almost all agents with a piece rate contract focus on the first task and disregard the second. Principals understand this and predominantly offer bonus contracts. This behavior contradicts the self-interest theory but is consistent with theories of fairness.
Subjects: 
Incentives
Moral Hazard
Multiple Tasks
Fairness
Experiments
JEL: 
C7
C9
J3
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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