Fairness and Incentives in Relation-Based Societies

Jiancai Pi

Economic Research-Ekonomska Istraživanja, 2011, vol. 24, issue 2, 15-25

Abstract: This paper mainly discusses the effects of fairness on incentives in relation-based societies (e.g., China) through the principal-agent framework. Our analyses give the conditions under which the consideration of fairness will decrease or increase the agent’s efficiency wage. At the same time, our analyses give the conditions under which taking into account fairness will make the principal’s constraint to incentivize the agent easier or harder to be satisfied. In a word, this paper finds that the incentive effects of fairness are condition-dependent, and that moral hazard problems are more subtle and difficult to be tackled when fairness is taken into account.

Date: 2011
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DOI: 10.1080/1331677X.2011.11517452

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