The paper identifies a condition under which favouritism is beneficial to the principal even when the favoured agent is selected randomly. This paper also characterizes how the optimal incentive scheme changes in presence of random favouritism. Using a moral hazard framework with limited...

This paper characterizes the structure of monetary incentives in an organization with varying differences in employee status. Specifically, it analyzes how the optimal incentive scheme varies with changing status. With the help of a simple moral hazard framework with limited liability we show...