Using the classic moral hazard problem with limited liability we characterize the optimal contracts when an other-regarding principal interacts with a self-regarding agent. The optimal contract differs considerably when the principal is ‘inequity averse’ vis-a-vis the self-regarding case....

The paper identifies a condition under which favouritism is beneficial to the principal even when the favoured agent is selected randomly. This paper also characterizes how the optimal incentive scheme changes in presence of random favouritism. Using a moral hazard framework with limited...

This paper characterizes the structure of monetary incentives in an organization with varying differences in employee status. Specifically, it analyzes how the optimal incentive scheme varies with changing status. With the help of a simple moral hazard framework with limited liability we show...