Strategic Framing in Contracts

Katharina Hilken (), Kris De Jaegher and M. Jegers

No 13-04, Working Papers from Utrecht School of Economics

Abstract: We provide a hidden-action principal-agent model where the agent has referencedependent preferences. The loss-averse agent considers the base wage as reference point, and bonuses and/or penalties as gains and losses, respectively. When choosing optimal payments, the principal strategically sets the base wage, knowing that this determines the agent's reference point. We consider two variants of the model. In a first variant, the agent's reservation utility is not reference-dependent. We show that it is always optimal in this case for the principal to employ bonuses. In a second variant, the reservation utility is reference-dependent and the principal may use penalties.

Keywords: Strategic Framing, Reference-Dependent Preferences; , Principal-Agent Theory, Optimal Payment Schemes, Employment Contracts (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://dspace.library.uu.nl/bitstream/handle/1874 ... sion_paper_13_04.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:use:tkiwps:1304

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Utrecht School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Marina Muilwijk ().