Status, incentives and random favouritism

Oindrila Dey and Swapnendu Banerjee (Bandyopadhyay)

MPRA Paper from University Library of Munich, Germany

Abstract: The paper identifies a condition under which favouritism is beneficial to the principal even when the favoured agent is selected randomly. This paper also characterizes how the optimal incentive scheme changes in presence of random favouritism. Using a moral hazard framework with limited liability it is shown that in presence of favouritism principal can optimally decrease monetary incentive when the potentially favoured group size is small. Inspite of a fall in optimal effort the paper predicts that favouritism can emerge as an optimal outcome when return of the firm is low.

Keywords: Favouritism; status-incentives; non-verifiability; moral hazard; optimal contract (search for similar items in EconPapers)
JEL-codes: D86 L14 L20 (search for similar items in EconPapers)
Date: 2013-06-01
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:49188

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