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Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment

Published online by Cambridge University Press:  14 March 2025

Vital Anderhub,
Simon Gächter and
Manfred Königstein
Vital Anderhub*
Affiliation:
Department of Economics, Humboldt-University at Berlin, Spandauer Strasse 1, D-10178 Berlin, Germany
Simon Gächter*
Affiliation:
University of St. Gallen, FEW-HSG, Varnbüelstrasse 14, CH-9000 St. Gallen, Switzerland
Manfred Königstein*
Affiliation:
Department of Economics, Humboldt-University at Berlin, Spandauer Strasse 1, D-10178 Berlin, Germany
*
email: anderhub@wiwi.hu-berlin.de
email: simon.gaechter@unisg.ch
email: mkoenig@wiwi.hu-berlin.de
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Abstract

We study behavior within a simple principal-agent experiment. Our design allows for a large class of linear contracts. Principals can offer any feasible combination of (negative) fixed wages and incentives in the form of return sharing. This great contractual flexibility allows us to study incentive compatibility simultaneously with issues of ‘fair sharing’ and reciprocity, which were previously found to be important. We find a high degree of incentive-compatible behavior, but also ‘fair sharing’ and reciprocity. In contrast to other incentive devices studied in the literature, the incentives are ‘reciprocity-compatible’. Principals recognize the agency problem and react accordingly.

Keywords

principal-agent theorycontract theoryfair sharingincentive contractsreciprocityexperiments

JEL classification

J41: Labor ContractsC91: Laboratory, Individual BehaviorJ33: Compensation Packages • Payment MethodsL14: Transactional Relationships • Contracts and Reputation • Networks

Information

Type
Research Article
Information
Experimental Economics , Volume 5 , Issue 1 , June 2002, pp. 5 - 27
Copyright
Copyright © 2002 Economic Science Association

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