The use of non-monotonic contracts in a single period game: An experimental investigation
Timothy Flannery and
Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2018, vol. 77, issue C, 177-185
This paper explores whether laboratory students design non-monotonic contracts when they are theoretically optimal in a simple principal-agent context. The principal constructs a contract for three possible outcomes, LOW, MEDIUM, and HIGH, and the agent observes the contract and responds with either an effort level of 0 or 12. Non-monotonic contracts that motivate high effort are optimal for principals because effort only affects the probability of LOW and MEDIUM outcomes. Our experiment has two treatments: one where principals interact with human agents and another with computer agents. Principals only select non-monotonic contracts with a frequency of 15% and 33% in each treatment, respectively. The results are consistent with concerns about equity and agent rationality.
Keywords: Non-monotonic contracts; Principal-agent problems; Non-monotonicity; Experimental economics; Contract theory; Moral hazard (search for similar items in EconPapers)
JEL-codes: C91 D86 J31 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:77:y:2018:i:c:p:177-185
Access Statistics for this article
Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Ofer Azar
More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().