The effects of pay regulation when agents are loss averse

Silvio Städter

Applied Economics Letters, 2018, vol. 25, issue 21, 1493-1498

Abstract: This article analyses the effects of a regulatory cap on executive pay when the agent is loss averse. I use a principal–agent model with moral hazard in which a principal and an agent bargain over an incentive contract. I show that even a non-binding cap on the agent’s payments can have consequences for the bargained outcome and consequently for the effort the agent exerts.

Date: 2018
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DOI: 10.1080/13504851.2018.1430317

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