Moral Hazard and Clear Conscience

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)

Abstract

The paper studies theoretically how the optimal contract in the hidden-action moral-hazard model is affected when an agent feels bad when not reaching a target effort set in the contract. In equilibrium, the agent's effort falls short of the target, inducing guilt, which must be compensated by a higher financial reward. Thus, although the principal's payoff is higher, the agent receives a part of the monetary rents accruing to intrinsic motivation. This result differs markedly from previous contributions on contracting under social preference or pro-social motivation.
Original languageEnglish
Peer-reviewed scientific journalJournal of Institutional and Theoretical Economics
Volume167
Issue number2
Pages (from-to)224-235
Number of pages12
DOIs
Publication statusPublished - 2011
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • KOTA2011

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