Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93887
Authors: 
Fehr, Ernst
Klein, Alexander
Schmidt, Klaus M.
Year of Publication: 
2005
Series/Report no.: 
SFB/TR 15 Discussion Paper 67
Abstract: 
We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit incentive contracts when there are some fair-minded players. But trust contracts that pay a generous wage upfront are less efficient than incentive contracts. The principals understand this and predominantly choose the bonus contracts. Our results are consistent with recently developed theories of fairness, which offer important new insights into the interaction of contract choices, fairness and incentives.
Subjects: 
Moral Hazard
Incentives
Bonus Contract
Trust Contract
Fairness
Inequity Aversion
JEL: 
C7
C9
J3
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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