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ERIC Number: EJ836133
Record Type: Journal
Publication Date: 2009
Pages: 15
Abstractor: As Provided
Reference Count: 27
ISSN: ISSN-0022-0485
Design a Contract: A Simple Principal-Agent Problem as a Classroom Experiment
Gachter, Simon; Konigstein, Manfred
Journal of Economic Education, v40 n2 p173-187 Spr 2009
The authors present a simple classroom experiment that can be used as a teaching device to introduce important concepts of organizational economics and incentive contracting. First, students take the role of a principal and design a contract that consists of a fixed payment and an incentive component. Second, students take the role of agents and decide on an effort level. The experiment illustrates shirking opportunities of the agent and the importance of work incentives. Furthermore, it can be used to introduce students to the concepts of contractual incompleteness, efficiency, incentive compatibility, outside options and participation constraints, the Coase theorem, and the potential roles of fairness and reciprocity in contracting. (Contains 2 figures and 10 notes.)
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Publication Type: Journal Articles; Reports - Descriptive
Education Level: Higher Education; Postsecondary Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A