Contract Choice: Efficiency and Fairness in Revenue‐Sharing Contracts

Alexandros Karakostas · Axel Sonntag · Daniel John Zizzo

16 citations0/0 files storedScandinavian Journal of Economics

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Experimental Behavioral Economics Studies Game Theory and Voting Systems Auction Theory and Applications

Abstract

Abstract We present a simple principal–agent experiment in which the principals are allowed to choose between a revenue‐sharing, a bonus, and a trust contract, to offer to an agent. Our findings suggest that a large majority of experimental subjects choose the revenue‐sharing contract. This choice turns out to be not only the most efficient but also, at the same time, fair. Overall, the distribution of earnings is only mildly skewed towards the principal. We conclude that, under revenue‐sharing contracts, concerns for fairness can be closely associated with the use of monetary incentives.

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References

1999A Theory of Fairness, Competition, and Cooperation 2007z-Tree: Zurich toolbox for ready-made economic experiments 1982An experimental analysis of ultimatum bargaining 2002Understanding Social Preferences with Simple Tests 2006The Hidden Costs of Control 2012Economic Incentives and Social Preferences: Substitutes or Complements?2003Detrimental effects of sanctions on human altruism 2010A within-subject analysis of other-regarding preferences

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