Contract Choice: Efficiency and Fairness in Revenue-Sharing Contracts

Karakostas, Alexandros; Sonntag, AxelORCID: and Zizzo, Daniel John (2017) Contract Choice: Efficiency and Fairness in Revenue-Sharing Contracts. The Scandinavian Journal of Economics, 119 (4), pp. 962-986. DOI: 10.1111/sjoe.12200

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We present a simple principal-agent experiment in which the principals are allowed to choose between a revenue-sharing, a bonus, and a trust contract, to offer to an agent. Our findings suggest that a large majority of experimental subjects choose the revenue-sharing contract. This choice turns out to be not only the most efficient but also, at the same time, fair. Overall, the distribution of earnings is only mildly skewed towards the principal. We conclude that, under revenue-sharing contracts, concerns for fairness can be closely associated with the use of monetary incentives. (Author's abstract)

Item Type: Article in Academic Journal
Keywords: Bonus contract, Incentive contract, Lab experiment, Moral hazard, Trust, Contract choice
Classification Codes (e.g. JEL): JEL C91, J41, M52
Research Units: Former Research Units (until 2020) > Insight Austria
Date Deposited: 16 Jan 2018 12:32
Last Modified: 01 Nov 2019 00:38
DOI: 10.1111/sjoe.12200
ISSN: 1467-9442

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