Team Incentives under Moral and Altruistic Preferences: Which Team to Choose?

Roberto Sarkisian

doi:10.3390/g8030037

Abstract

This paper studies incentives provision when agents are characterized either by homo moralis preferences, i.e., their utility is represented by a convex combination of selfish preferences and Kantian morality, or by altruism. In a moral hazard in a team setting with two agents whose efforts affect output stochastically, I demonstrate that the power of extrinsic incentives decreases with the degrees of morality and altruism displayed by the agents, thus leading to increased profits for the principal. I also show that a team of moral agents will only be preferred if the production technology exhibits decreasing returns to efforts; the probability of a high realization of output conditional on both agents exerting effort is sufficiently high; and either the outside option for the agents is zero or the degree of morality is sufficiently low.

Highlights

This paper presents a comparison between optimal contracts offered tostraightforward: teams of agents,always choose to employ altruistic agents
If the condition doestowards not hold, employing moral individuals may lead to higher who may be characterized by either homo moralis preferences or altruism each other
This paper presents a comparison between thethose optimal contracts offered to teams of agents, the sense that the employers needs to pay a smaller wage to induce participation of the agents

Summary

Introduction

The analysis below differs from the previous literature in three crucial points: first, it considers homo moralis preferences, which has not, to the best of my knowledge, been done before in a contracting setting, presenting a simple environment where the principal can profitably explore idiosyncrasies generated by those and altruistic preferences. It does not allow for monitoring, nor private information about the agents’ preferences, so that I can focus solely on the effect of the prosocial preferences on the optimal contract design. For the ease of exposition, all proofs are relegated to Appendix C

The Model

Studying the Benchmark

Moving to the Second Best

Findings

Concluding Remarks