We conducted an experimental study on social preferences using dictator games similar to Fehr et al. (2008). We show that social preferences differ between participants who receive low-stakes monetary rewards for their decisions and participants who consider hypothetical stakes. The results are...

We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit...

In this paper we report on a principal-agent experiment where the principal can choose whether to rely on an unenforcable bonus contract or to combine the bonus contract with a fine if the agent's effort falls below a minimum standard. We show that most principals do not use the fine and that...

We analyze optimal labor contracts when the worker is inequity averse towards the employer. Welfare is maximized for an equal sharing rule of surplus between the worker and the firm. That is, profit sharing is optimal even if effort is contractible. If the firm can make a take-it-or leave-it...

We introduce a concept of emotions that emerge when workers compare their own performance with the performances of co-workers. Assuming heterogeneity among the workers the interplay of emotions and incentives is analyzed within the framework of rank-order tournaments which are frequently used in...