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The Intensity of Incentives in Firms and Markets: Moral Hazard with Envious Agents

Bartling, Björn; Siemens, Ferdinand von - Volkswirtschaftliche Fakultät, … - 2006

. We offer an explanation for this observation based on envy among agents in an otherwise standard moral hazard model with …. The necessary compensation for expected envy renders incentive provision more expensive, which generates a tendency … towards flat-wage contracts. Moreover, empirical evidence suggests that social comparisons like envy are more pronounced among …

Persistent link: https://www.econbiz.de/10005785929

You Don't Always Get What You Pay For

Schnedler, Wendelin - Institute for the Study of Labor (IZA) - 2007

Consider a principal-agent relationship in which more effort by the agent raises the likelihood of success. Does rewarding success, i.e., paying a bonus, increase effort in this case? I find that bonuses have not only an incentive but also an income effect. Overall, bonuses paid for success may...

Persistent link: https://www.econbiz.de/10005762122

Sabotage in teams

Kräkel, Matthias; Müller, Daniel - In: Economics Letters 115 (2012) 2, pp. 289-292

We show that a team may favor self-sabotage to influence the principal’s contract decision. Sabotage increases a team member’s bonus and total team effort. If these benefits outweigh the reduction in the success probability, sabotaging the team is rational.

Persistent link: https://www.econbiz.de/10011041830

Compensation, perks, and welfare

Weinschenk, Philipp - In: Economics Letters 120 (2013) 1, pp. 67-70

In an agency model with moral hazard and limited liability, we show that the provision of perks can be inefficient, even if perks are contractible. Interestingly, there can be over- as well as underinvestment in perks. We also demonstrate that perks may actually harm the agent, although perks...

Persistent link: https://www.econbiz.de/10010665688

Limited Liability and the Trade-off between Risk and Incentives

Kräkel, Matthias - Volkswirtschaftliche Fakultät, … - 2007

Several empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

Persistent link: https://www.econbiz.de/10005785842

Limited Liability and the Trade-off between Risk and Incentives

Kräkel, Matthias - University of Bonn, Germany - 2007

everal empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

Persistent link: https://www.econbiz.de/10004968389

On Reputation: A Microfoundation of Contract Enforcement and Price Rigidity

Brown, Martin; Zehnder, Christian; Fehr, Ernst - Schweizerische Nationalbank (SNB) - 2008

We study the impact of reputational incentives in markets characterized by moral hazard problems. Social preferences have been shown to enhance contract enforcement in these markets, while at the same time generating considerable wage and price rigidity. Reputation powerfully amplifies the...

Persistent link: https://www.econbiz.de/10008925002

On reputation: A microfoundation of contract enforcement and price rigidity

Fehr, Ernst; Brown, Martin; Zehnder, Christian - Institut für Volkswirtschaftslehre, … - 2008

Persistent link: https://www.econbiz.de/10005627891

Legitimacy of Control

Schnedler, Wendelin; Vadovic, Radovan - Institute for the Study of Labor (IZA) - 2007

What is the motivational effect of imposing a minimum effort requirement? Agents may no longer exert voluntary effort but merely meet the requirement. Here, we examine how such hidden costs of control change when control is considered legitimate. We study a principalagent model where control...

Persistent link: https://www.econbiz.de/10005822988

Monitoring in Tournaments

Kim, Jaesoo; Park, Jongwoo - In: Economics Bulletin 34 (2014) 3, pp. 1431-1437

We show that less monitoring can increase effort and alleviate the moral hazard problem in tournaments. We also find a unique optimal level of monitoring based on contestants' abilities. As the difference between their abilities gets larger, the contest designer should monitor less.

Persistent link: https://www.econbiz.de/10010796127

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