Article ID: | iaor20051604 |
Country: | United Kingdom |
Volume: | 106 |
Issue: | 3 |
Start Page Number: | 453 |
End Page Number: | 474 |
Publication Date: | Jul 2004 |
Journal: | Scandinavian Journal of Economics |
Authors: | Fehr Ernst, Schmidt Klaus M. |
Keywords: | agent technology, supply chain |
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 effort on both tasks with substantial bonuses. Agents participate this and provide high effort on both tasks. In contrast, almost all agents with a piece-rate contract focus on the first task and disregard the second. Principals understand this and predominantly offer bonus contracts. This behaviour contradicts the self-interest theory but is consistent with theories of fairness.