The (de)composition of firms: interdependent preferences of corporate actors

This article discusses the limitations of the orthodox economic theory of the firm as a nexus of contracts. Various experimental studies have shown that the aggregation of individuals in groups changes behavior and preferences systematically. This perspective has been formalized by models of interdependent preferences. Based on a prominent approach of interdependent preferences, intention-based preferences, two types of labor contracts, incentive contracts and bonus contracts, are analyzed. Results are compared with the predictions of the orthodox economic theory.