Optimal Incentives Schemes under Homo Moralis Preferences

Roberto Sarkisian
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Roberto Sarkisian: Department of Economics and Finance, Tor Vergata University of Rome, Via Columbia, 2 00133 Rome, Italy

Games, 2021, vol. 12, issue 1, 1-22

Abstract: This study focuses on the optimal incentive schemes in a multi-agent moral hazard model, where each agent has other-regarding preferences and an individual measure of output, with both being observable by the principal. In particular, the two agents display homo moralis preferences. I find that, contrary to the case with purely selfish preferences, tournaments can never be optimal when agents are risk averse, and as the degree of morality increases, positive payments are made in a larger number of output realizations. Furthermore, I extend the analysis to a dynamic setting, in which a contract is initially offered to the agents, who then repeatedly choose which level of effort to provide in each period. I show that the optimal incentive schemes in this case are similar to the ones obtained in the static setting, but for the role of intertemporal discounting.

Keywords: moral hazard in teams; optimal contracts; homo moralis preferences (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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