Other regarding principal and moral hazard: the single agent case

Banerjee, Swapnendu and Sarkar, Mainak (2014): Other regarding principal and moral hazard: the single agent case.

Abstract

Using the classic moral hazard problem with limited liability we characterize the optimal incentive contracts when first 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. Also the agent is generally (weakly) better-off under an ‘inequity averse’ principal compared to a ‘status seeking’ principal. Then we extend our analysis and characterize the optimal contracts when both other-regarding principal and other-regarding agent interact.

• Item Type: MPRA Paper
• Language: English
• Keywords: Other regarding preferences, self regarding preferences, inequity-averse, status- seeking, optimal contract
• Subjects: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior

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