Economics, Econometrics and Finance
4 years ago

Imprecise Beliefs Simplify Optimal Contracts, Boosting Workplace Fairness

RePEc: Research Papers in Economics
Imprecise Beliefs in a Principal Agent Model
Luca Rigotti

Paper Summary

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The article explores a model where a worker has different beliefs about their job. To deal with this, the boss needs to create a simple payment plan that works for all beliefs. The best plan has two parts: a fixed payment and a bonus. This means the worker gets the same bonus no matter how well they do in each group. By simplifying the model, the boss can still make good decisions. This research has important implications for how companies are run.