Publications
Incentives and Relative-Wealth Concerns, Quarterly Journal of Finance, Forthcoming
Online Appendix
Instructions First
Treatment
Instructions Second
Treatment
Working
Papers
ABSTRACT: Traditionally in economics the actions of
agents have been viewed as
driven exclusively by individuals' interest in their own wealth.
Nonetheless experimental evidence shows that agents enjoy being richer
than their peers or, in other words, agents are interested in their
status within a group. In this work I derive the optimal linear
contract in a moral hazard problem where agents are risk averse and are
concerned about how much they are compensated relative to their
colleagues. I show that in the presence of such relative wealth
concerns 1)
it is optimal for the principal to offer a compensation schedule linked
to the overall firm or team performance, even when each agent's
performance is observable, contractible and independent on the actions
taken by his/her colleagues, 2) Relative Performance Evaluation is less
desirable for the principal.
ABSTRACT: In
this paper we hypothesize that if the quantity relative to which the
agents compare their compensation is random, an agent forms a reference
point equal to the expected value of such quantity (average payoff
hypothesis). If agents are inequity averse, we show how the average
payoff hypothesis produces implications for a principal on whether to
enforce a secrecy or disclosure policy for compensation within an
organization.
Work in
Progress
The use of derivatives in small firms (with Bruno Gerard and Charlotte Østergaard)
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