Moral Hazard and Other-Regarding Preferences

The paper aims at obtaining new theoretical insights by combining the standard moral hazard models of principal–agent relationships with theories of other‐regarding preferences, in particular inequity aversion theory. The principal is in general worse off, as the agent cares more about the wellbeing...

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Bibliographic Details
Published inJapanese economic review (Oxford, England) Vol. 55; no. 1; pp. 18 - 45
Main Author Itoh, Hideshi
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.03.2004
Japanese Economic Association
Springer Nature B.V
SeriesThe Japanese Economic Review
Subjects
Economic models
Economic theory
Moral hazard
Organizations
Preferences
Principal-agent theory
Studies
Well-being
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Summary:The paper aims at obtaining new theoretical insights by combining the standard moral hazard models of principal–agent relationships with theories of other‐regarding preferences, in particular inequity aversion theory. The principal is in general worse off, as the agent cares more about the wellbeing of the principal. When there are multiple symmetric agents who care about each other's wellbeing, the principal can optimally exploit their other‐regarding nature by designing an appropriate interdependent contract such as a “fair” team contract or a relative performance contract. The approach taken in this paper can shed light on issues on endogenous preferences within organizations.
Bibliography:istex:2DDCA45223FF30DC5946EB7B7D9988EF339337BB
ArticleID:JERE273
ark:/67375/WNG-JQP0D5M6-L
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:1352-4739
1468-5876
DOI:10.1111/j.1468-5876.2004.00273.x