Inequity Version and Team Incentives

Pedro Rey-Biel

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: We study optimal contracts in a simple model where employees are averse to inequity as modelled by Fehr and Schmidt (1999). A "selfish" employer can profitably exploit such preferences among its employees by offering contracts which create inequity off-equilibrium and thus, they would leave employees feeling envy or guilt when they do not meet the employer's demands. Such contracts resemble team and relative performance contracts, and thus we derive conditions under which it may be beneficial to form work teams of employees with distributional concerns who were previously working individually. Similar results are obtained for status-seeking and efficiency concerns preferences.

Keywords: Inequity aversion; team incentives; behavioral contract theory (search for similar items in EconPapers)
JEL-codes: C72 D23 D63 M12 (search for similar items in EconPapers)
Pages: 27
Date: 2007-01-15
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Inequity Aversion and Team Incentives (2008)
Working Paper: Inequity aversion and team incentives (2004)
Working Paper: Inequity Aversion and Team Incentives
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:677.07

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