Research Details

Abstract

This paper aims to improve the practical applicability of the classic theory of incentive contracts under moral hazard. We establish conditions under which the information provided by an A/B test of incentive contracts is a sufficient statistic for answering the question of how best to improve a status quo incentive contract, given a priori knowledge of the agent's monetary preferences. We assess the empirical relevance of this result using data from DellaVigna and Pope's (2018) study of a variety of incentive contracts. Finally, we discuss how our framework can be extended to incorporate additional considerations beyond those in the classic theory.

Type

Article

Author(s)

George Georgiadis, Michael Powell

Date Published

2022

Citations

Georgiadis, George, and Michael Powell. 2022. A/B Contracts. American Economic Review.(1): 267-303.