Contract Design with Socially-Attentive Preferences

Philipp Weinschenk

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: The standard agency model assumes that the agent does not care how his decisions influence others. This is a strong assumption, which we relax. We find that, although monetary incentives are effective also with sociallyattentive agents, the principal may optimally set none. This could explain the puzzle that empirically only a fraction of employees experiences monetary incentives. We also show that the principal benefits from having a socially-attentive agent and how she optimally influences her agent's preferences. Furthermore, contractibility of effort does not generally cause the implementation of the efficient effort and may harm the generated surplus. This provides an efficiency argument for regulatory boundaries on employers' control over employees and the content of employment contracts.

Keywords: agency model; socially-attentive preferences; incentives (search for similar items in EconPapers)
JEL-codes: D82 D91 M52 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203546

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