The paper shows that an increase in competition has two effects on managerial incentives: it increases the probability of liquidation, which has a positive effect on managerial effort, but it also reduces the firm’s profits, which may make it less attractive to induce high effort. Thus, the...

This paper reports on a two-task principal-agent experiment in which only one task is contractible. The principal can either offer a piece-rate contract or a (voluntary) bonus to the agent. Bonus contracts strongly outperform piece rate contracts. Many principals reward high efforts on both...

Is sovereign debt so different from corporate debt that there is no need for bankruptcy procedures to handle potential defaults? The basic tools of finance seem to confirm that, without water-tight sovereign immunity, creditors face a Prisoner’s Dilemma: litiginous creditors may be tempted to...

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...

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 with fairness. Conversely, contracts that...

We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit...