Principal’s distributive preferences and the incentivization of agents

Sophie Cêtre () and Max Lobeck ()
Additional contact information
Sophie Cêtre: Institut de Radioprotection et de Sûreté Nucléaire
Max Lobeck: University of Konstanz

Experimental Economics, 2023, vol. 26, issue 3, No 7, 646-672

Abstract: Abstract Do principals' distributive preferences affect the allocation of incentives within firms? We run a Principal-Agent lab experiment, framed as a firm setting. In the experiment, subjects are randomized in the principal or worker position. Principals must choose piece rate wage contracts for two workers that differ in terms of ability. Workers have to choose an effort level that is non-contractible. Principals are either paid in proportion to the output produced (Stakeholder treatment) or paid a fixed wage (Spectator treatment). We study how principals make trade-offs between incentive concerns (motivating workers to maximize output) and their own normative distributive preferences. We find that, despite the firm-frame and the moral hazard situation, principals do hold egalitarian concerns, as principals are on average willing to trade off their firm's performance (and so their own income) for more wage equality among their workers. The willingness to reduce inequality among workers is sensitive to both extensive and intensive margin incentives, which shows that principals' choices are shaped by incentives that they face themselves.

Keywords: Fairness; Distributive preferences; Principal-agent; Social preferences (search for similar items in EconPapers)
JEL-codes: C49 C91 D63 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10683-023-09791-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:kap:expeco:v:26:y:2023:i:3:d:10.1007_s10683-023-09791-0

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10683/PS2

DOI: 10.1007/s10683-023-09791-0

Access Statistics for this article

Experimental Economics is currently edited by David J. Cooper, Lata Gangadharan and Charles N. Noussair

More articles in Experimental Economics from Springer, Economic Science Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().