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Type	Working Paper
Scope	Discipline-based scholarship
Title	Fairness, Incentives and Contractual Incompleteness
Organization Unit	Microeconomics and Experimental Economic Research (Ernst Fehr)
Authors	Ernst Fehr Alexander Klein Klaus M Schmidt
Language	English
Institution	University of Zurich
Series Name	Working paper series / Institute for Empirical Research in Economics
Number	No. 72
ISSN	1424-0459
Date	2001
Abstract Text	We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that are doomed to fail when there are only selfish actors provide powerful incentives and become superior when there are also fair-minded players. These predictions are strongly supported by the results of a series of experiments. Furthermore, our results suggest that the existence of fair actors may be an important reason why many contracts are left deliberately incomplete.
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