Contracts for Agents with Biased Beliefs: Some Theory and an Experiment

Anja Sautmann

American Economic Journal: Microeconomics, 2013, vol. 5, issue 3, 124-56

Abstract: This paper experimentally tests the predictions of a principal-agent model in which the agent has biased beliefs about his ability. Overconfi dent workers are found to earn lower wages than underconfi dent ones because they overestimate their expected payoff , and principals adjust their off ers accordingly. Moreover, the profi t-maximizing contract distorts e ffort by varying incentives according to self-con fidence, although only the most successful principals use this strategy. These fi ndings have implications for the labor market; in particular, self-con fidence is often correlated with gender, implying that principals would prefer to hire men over women simply because they are more overconfi dent.

JEL-codes: D82 D83 D86 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/mic.5.3.124
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.3.124 (application/pdf)
http://www.aeaweb.org/aej/mic/data/2011-0093_data.zip (application/zip)
http://www.aeaweb.org/aej/mic/app/2011-0093_app.pdf (application/pdf)
Access to full text is restricted to AEA members and institutional subscribers.

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:aea:aejmic:v:5:y:2013:i:3:p:124-56

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Microeconomics is currently edited by Johannes Hörner

More articles in American Economic Journal: Microeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().