Fairness, Incentives and Contractual Incompleteness

Ernst Fehr, Alexander Klein and Klaus Schmidt ()

No 72, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that are doomed to fail when there are only selfish actors provide powerful incentives and become superior when there are also fair-minded players. These predictions are strongly supported by the results of a series of experiments. Furthermore, our results suggest that the existence of fair actors may be an important reason why many contracts are left deliberately incomplete.

Keywords: Incentive Contracts; Moral Hazard; Fairness; Reciprocity; Incomplete Contracts (search for similar items in EconPapers)
JEL-codes: C7 C9 J3 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
https://www.zora.uzh.ch/id/eprint/51973/1/iewwp072.pdf (application/pdf)

Related works:
Working Paper: Fairness, Incentives and Contractual Incompleteness (2001)
Working Paper: Fairness, Incentives and Contractual Incompleteness (2001)
Working Paper: Fairness, Incentives and Contractual Incompleteness (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:072

Access Statistics for this paper

More papers in IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich
Bibliographic data for series maintained by Severin Oswald ().