Principal’s distributive preferences and the incentivization of agents

Sophie Cêtre () and Max Lobeck ()
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Sophie Cêtre: IRSN/PSE-SANTE/SESUC/LERN - Laboratoire d'Economie du Risque Nucléaire - IRSN - Institut de Radioprotection et de Sûreté Nucléaire
Max Lobeck: University of Konstanz

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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)
Date: 2023-02-03
New Economics Papers: this item is included in nep-exp and nep-hrm
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Published in Experimental Economics, 2023, 26 (3), pp.646-672. ⟨10.1007/s10683-023-09791-0⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04347515

DOI: 10.1007/s10683-023-09791-0

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