Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93971
Authors: 
Fehr, Ernst
Schmidt, Klaus M.
Year of Publication: 
2007
Series/Report no.: 
SFB/TR 15 Discussion Paper 197
Abstract: 
In this paper we report on a principal-agent experiment where the principal can choose whether to rely on an unenforcable bonus contract or to combine the bonus contract with a fine if the agent's effort falls below a minimum standard. We show that most principals do not use the fine and that the pure bonus contract is more efficient than the combined contract. Our experiment suggests that principals who are less fair are more likely to choose a combined contract and less likely to actually pay the announced bonus. This offers a new explanation for why explicit and implicit incentives are substitutes rather than complements.
Subjects: 
moral hazard
bonus contract
implicit incentives
fairness
incentives
JEL: 
C7
C9
J3
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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