Inequity aversion in a model with moral hazard

Kirill Chernomaz ()
Additional contact information
Kirill Chernomaz: San Francisco State University

Economics Bulletin, 2012, vol. 32, issue 3, 2500-2510

Abstract: In this paper we solve a parametric moral hazard model that incorporates risk and inequity aversion. In the model, the worker's effort is not contractible but the employer can link the worker's compensation to the revenue, a measure probabilistically related to the effort. The model can account for some regularities observed in the experimental data such as loss avoidance. It also suggests that inequity aversion may amplify variability of the worker's compensation. Data from a within-subject experiment is used to estimate the unobservable parameter of inequity aversion. Experimental results generally support the model's predictions. In the setting considered, the estimate of the inequity aversion parameter implies that about 30 percent of the change in the revenue range is passed into the worker's incentive payment.

Keywords: contract theory; moral hazard; fairness; inequity aversion; labor market; experimental economics (search for similar items in EconPapers)
JEL-codes: C9 D8 (search for similar items in EconPapers)
Date: 2012-09-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P240.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:ebl:ecbull:eb-12-00424

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().