We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully contingent co...

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Bibliographische Detailangaben

Hauptverfasser:	Herweg, Fabian 1980- (VerfasserIn), Müller, Daniel 1978- (VerfasserIn), Weinschenk, Philipp 1979- (VerfasserIn)
Format:	Buch
Sprache:	English
Veröffentlicht:	Bonn Max Planck Inst. for Research on Collective Goods 2010
Schriftenreihe:	Preprints of the Max Planck Institute for Research on Collective Goods 2010,38
Online-Zugang:	http://www.coll.mpg.de/?q=node/2513 Kostenfrei
Zusammenfassung:	We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully contingent contract. The logic is that, due to the stochastic reference point, increasing the number of different wages reduces the agent’s expected utility without providing strong additional incentives. Moreover, for diminutive occurrence probabilities for all signals the agent is rewarded with the fixed bonus if his performance exceeds a certain threshold.
Beschreibung:	33 S.
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