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| Author: | Itoh, H. |
| Title: | Moral hazard and other-regarding preferences |
| Journal: | Japanese Economic Review
2004 : MAR, VOL. 55:1, p. 18-45 |
| Index terms: | Agency theory Moral hazard |
| Language: | eng |
| Abstract: | The aim of this article is to obtain new insights by combining the standard moral hazard model of principal-agent relationships with theories of other-regarding preferences, particularly inequity aversion theory. The principal is in general worse off, as the agent cares more about the wellbeing of the pricipal. 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. |
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