Contract design with socially attentive preferences

Simon Koch and Philipp Weinschenk

Games and Economic Behavior, 2021, vol. 130, issue C, 591-601

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 also effective with socially attentive agents, the principal may optimally set none. This could explain the puzzle why empirically only a fraction of employees experiences monetary incentives. Furthermore, in case the agent's type is private information, the principal optimally offers a single pooling contract, i.e., never screens for different types, no matter how rich the set of possible attentiveness levels is and what shape the underlying distribution function has.

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: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:130:y:2021:i:c:p:591-601

DOI: 10.1016/j.geb.2021.10.002

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