Output and Wages with Inequality Averse Agents

@inproceedings{Demougin2004OutputAW,
  title={Output and Wages with Inequality Averse Agents},
  author={Dominique Demougin and Claude Fluet and Carsten Helm},
  year={2004}
}
We analyze a two-task work environment with risk-neutral but inequality averse individuals. For the agent employed in task 2 effort is verifiable, while in task 1 it is not. Accordingly, agent 1 receives an incentive contract which, due to his wealth constraint, leads to a rent that the other agent resents. We show that inequality aversion affects the optimal contracts of both agents. Greater inequality aversion reduces the effort, wage and payoff of agent 1, while the effects on the wage and… CONTINUE READING

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