Fairness, Adverse Selection, and Employment Contracts

Ferdinand von Siemens

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: This paper considers a firm whose potential employees have private information on both their productivity and the extent of their fairness concerns. Fairness is modelled as inequity aversion, where fair-minded workers suffer if their colleagues get more income net of production costs. Screening workers with equal productivity but different fairness concerns is shown to be impossible if both types are to be employed, thereby rendering the optimal employment contracts discontinuous in the fraction of fair-minded workers. As a result, fairness might infuence the employment contracts of all workers although only some are fair-minded, and identical firms facing very similar pools of workers might employ very different remuneration schemes.

Keywords: Fairness; Employment Contracts; Adverse Selection; Screening; Heterogeneity in Organizational Form (search for similar items in EconPapers)
JEL-codes: C70 D21 D42 D63 D82 J31 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:669

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