Moral Hazard and Other-Regarding Preferences

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

This chapter 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 chapter can shed light on issues on endogenous preferences within organizations.

Original languageEnglish
Title of host publicationBehavioral Interactions, Markets, and Economic Dynamics
Subtitle of host publicationTopics in Behavioral Economics
PublisherSpringer Japan
Pages483-517
Number of pages35
ISBN (Electronic)9784431555018
ISBN (Print)9784431555001
DOIs
Publication statusPublished - 2015 Sep 12
Externally publishedYes

Keywords

  • Behavioral contract theory
  • Inequity aversion
  • Moral hazard

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)
  • Psychology(all)

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  • Cite this

    Itoh, H. (2015). Moral Hazard and Other-Regarding Preferences. In Behavioral Interactions, Markets, and Economic Dynamics: Topics in Behavioral Economics (pp. 483-517). Springer Japan. https://doi.org/10.1007/978-4-431-55501-8_17