Optimal Contracts When Agents Envy Each Other

Download or read book Optimal Contracts When Agents Envy Each Other written by Anjan V. Thakor and published by . This book was released on 2005 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the characteristics of endogenously-determined optimal incentive contracts for agents who envy each other and work for a risk-neutral (non-envious) principal. Envy makes each agent care not only about absolute consumption but also about relative consumption. Incentive contracts in this setting display properties strikingly different from those associated with optimal contracts in standard principal-agent theory. We derive results that help explain some of the discrepancies between the predictions of principal-agent theory and the stylized facts about real-world contracts.