Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/307029 
Year of Publication: 
2023
Citation: 
[Journal:] Experimental Economics [ISSN:] 1573-6938 [Volume:] 26 [Issue:] 3 [Publisher:] Springer US [Place:] New York, NY [Year:] 2023 [Pages:] 646-672
Publisher: 
Springer US, New York, NY
Abstract: 
Do principals' distributive preferences affect the allocation of incentives within firms? We run a Principal-Agent lab experiment, framed as a firm setting. In the experiment, subjects are randomized in the principal or worker position. Principals must choose piece rate wage contracts for two workers that differ in terms of ability. Workers have to choose an effort level that is non-contractible. Principals are either paid in proportion to the output produced (Stakeholder treatment) or paid a fixed wage (Spectator treatment). We study how principals make trade-offs between incentive concerns (motivating workers to maximize output) and their own normative distributive preferences. We find that, despite the firm-frame and the moral hazard situation, principals do hold egalitarian concerns, as principals are on average willing to trade off their firm's performance (and so their own income) for more wage equality among their workers. The willingness to reduce inequality among workers is sensitive to both extensive and intensive margin incentives, which shows that principals' choices are shaped by incentives that they face themselves.
Subjects: 
Fairness
Distributive preferences
Principal-agent
Social preferences
JEL: 
D63
C49
C91
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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