Research Summary
Research Summary
Optimal Contracts under Inequity Aversion with Voluntary Enforcement (with Tilman Borgers)
Description
We analyze contract structure and efficiency in a Moral Hazard model with possibly fairminded agent and principal when the contract is not automatically enforced but this is a voluntary choice by the contracting parties independently. We find that no penalizing contracts are feasible and the optimal contract may be incomplete. Furthermore fairness can lead to inefficient results. We plan to analyze sorting of workers into firms and the selfselection of who becomes entrepreneur.