Journal article
Optimal Incentives With Other‐Regarding Principal and Agents
Journal of public economic theory, Vol.27(5), e70066
10/2025
DOI: 10.1111/jpet.70066
Appears in UI Libraries Support Open Access
Abstract
Analyzing interactions between an other‐regarding principal and two other‐regarding agents, we show with continuous efforts and outcomes that “team contracts” are optimal if the principal is inequity averse or not “too status seeking.” However, if the principal is sufficiently status seeking and the agents' wages are far apart, relative performance contracts or independent contracts could be the optimal choice of the principal. However, a status‐seeking principal will certainly offer relative performance contracts to self‐regarding agents. The above results hold when the ‘direct wage incentive’ effect is not too high. With discrete efforts and outcomes, both team contracts and relative performance contracts can be optimal if the principal is “status seeking” or “not too inequity averse.” But an extreme independent contract can also be optimal when the principal is sufficiently inequity averse. Similar results hold when the projects of the agents are correlated. With a “fair” principal, ceteris paribus, team contracts are more likely over relative performance contracts, however, relative performance contracts can also be optimal with other‐regarding agents.
Details
- Title: Subtitle
- Optimal Incentives With Other‐Regarding Principal and Agents
- Creators
- Swapnendu Banerjee - Jadavpur UniversitySomenath Chakraborty - GITAM UniversityArijit Mukherjee - University of NottinghamSougata Poddar - University of Iowa
- Resource Type
- Journal article
- Publication Details
- Journal of public economic theory, Vol.27(5), e70066
- DOI
- 10.1111/jpet.70066
- ISSN
- 1097-3923
- eISSN
- 1467-9779
- Publisher
- Wiley
- Grant note
- ESI Chapman University, Orange California, ISI Delhi: BREW 2022
We thank the two anonymous referees for their extensive comments and suggestions that led to substantial improvement in the quality of the paper. We are also grateful to Professor Rabah Amir, Editor of this journal for encouraging us to revise and resubmit this paper. A version of this paper was presented at UC Irvine, ESI Chapman University, Orange California, ISI Delhi, IIM Bangalore, CSSSC Kolkata and the Behavioral Research in Economics Workshop (BREW 2022). Comments from Vernon L. Smith, Charles Noussair, Priya Ranjan, Sugata Marjit, and other participants are gratefully acknowledged. The usual disclaimer applies.
- Language
- English
- Date published
- 10/2025
- Academic Unit
- Economics
- Record Identifier
- 9984968455502771
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