Fair Contracts

Shingo Ishiguro

No 11-30, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: In this paper we present an axiomatic approach to characterize the optimal contracts, which we call gfair contracts, h in the general moral hazard model. The two main axioms we employ are incentive efficiency and no-envyness. The incentive efficiency requires that agents of organization select the Pareto efficient contracts among all possible incentive compatible contracts. No-envyness is equity requirement to ensure that each agent does not envy contracts of others in the same organization. We then show that, due to the tension between incentive efficiency and no-envyness, fair contracts have the very simple feature that risk averse agents are offered the fixed wage to choose only the least costly action.

Keywords: Moral Hazard; Incentive Contracts; Fairness. (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2011-11
New Economics Papers: this item is included in nep-bec, nep-cta, nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:1130

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