Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Stockholm Institute of Transition Economics, Stockholm School of Economics SITE Working Paper Series

No 4:
Moral Hazard and Clear Conscience

Topi Miettinen ()

Abstract: The paper studies theoretically how the optimal contract in the hidden-action moral hazard model is affected when an agent feels bad when not reaching a target effort set in the contract. While the presence of guilt brings the outcome closer to first-best, an effort target is not costless for the principal. In equilibrium, the agentís effort falls short of the target, inducing guilt which must be compensated by a higher financial reward. Thus, although the principalís payoff is higher, the agent receives a part of the monetary rents accruing to intrinsic motivation. This result differs markedly from previous contributions on contracting under social preference or pro-social motivation.

Keywords: Moral Hazard; Norms; Agency; Social Preferences; Guilt; Work Ethic; (follow links to similar papers)

JEL-Codes: C72; D82; Z13; (follow links to similar papers)

19 pages, September 8, 2009

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

hasite0004.pdf    PDF-file (228kB) 
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Evelina Bonnier ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:hasite:0004 This page was generated on 2015-03-25 00:18:28