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...

The marginal cost of effort often increases as effort is exerted. In a dynamic moral hazard setting, dynamically increasing costs create information asymmetry. This paper characterizes the optimal contract and helps explain the popular yet thus far puzzling use of non-linear incentives, for...

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...

Abstract Traditionally in economics the actions of agents have been viewed as driven exclusively by individuals' interest in their own wealth. Nonetheless experimental evidence shows that agents enjoy being richer than their peers or, in other words, agents are interested in their status within...

We develop a new approach to quantify how patients respond to dynamic incentives in health insurance contracts with a deductible. Our approach exploits two sources of variation in a differences-in-regression-discontinuities design: deductible contracts reset at the beginning of the year, and...

This paper studies relational incentive contracts with persistent states in the presence of both moral hazard and information asymmetry. The optimal contracts are dynamic in which the agents are rewarded following a high output by moving to a higher continuation payoff in the next period. The...