Jenny Kragl | EBS University of Business and Law (original) (raw)

Papers by Jenny Kragl

International Economic Review, Apr 22, 2014

We analyze the e¤ects of wage ‡oors on optimal job design in a moral-hazard model with asymmetric... more We analyze the e¤ects of wage ‡oors on optimal job design in a moral-hazard model with asymmetric tasks and imperfect aggregate performance measurement. Due to cost advantages of specialization, assigning the tasks to di¤erent agents is e¢ cient. A su¢ ciently high wage ‡oor, however, induces the principal to dismiss one agent or to even exclude tasks from the production process. Imperfect performance measurement always lowers pro…t under multitasking, but may increase pro…t under specialization. We further show that variations in the wage ‡oor and the agents'reservation utility have signi…cantly di¤erent e¤ects on welfare and optimal job design.

Social Science Research Network, 2014

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

This thesis consists of three self-contained essays that investigate the impact of fairness conce... more This thesis consists of three self-contained essays that investigate the impact of fairness concerns among agents on the efficient design of real-world incentive contracts used to mitigate moral-hazard problems under non-verifiable performance. All papers consider situations in which a firm employs two inequity averse workers whose individual performances are, albeit observable by the contracting parties, not contractible. The first paper studies the effects of inequity aversion on relational employment contracts. Performance is evaluated via an agent's individual non-verifiable contribution to firm value. In contrast to the literature, we find that inequity aversion may be beneficial: In the presence of envy, for a certain range of interest rates relational contracts may be more profitable. For some interest rates reputational equilibria exist only with envious agents. In the second paper, I compare group to individual performance pay. Avoiding payoff inequity, the group bonus contract is superior as long as the firm faces no credibility problem. The individual bonus contract may, however, become superior albeit introducing the prospect of unequal pay. This is due to two reasons: The group bonus scheme is subject to a free-rider problem requiring a higher incentive pay and impeding credibility of the firm. Moreover, with individual bonuses the firm benefits from the incentive-strengthening effect of envy, allowing for yet smaller incentive pay and further softening the credibility constraint. The third paper contrasts a rank-order tournament with independent bonus contracts. Whereas the bonus scheme must be self-enforcing, the tournament is contractible. Yet the former incentive regime outperforms the latter as long as credibility problems are not too severe. This is due the fact that the tournament requires unequal pay across peers with certainty and thus imposes large inequity premium costs on the firm. For a simple example, I show that the more envious the agents are the larger is the range of interest rates for which the bonus scheme dominates the tournament.

Social Science Research Network, 2022

Social Science Research Network, 2009

We study the effects of envy on relational employment contracts in a standard moral hazard setup ... more We study the effects of envy on relational employment contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which reflects an agent's individual contribution to firm value. Both agents exhibit horizontal disadvantageous inequity aversion. In contrast to the literature, we find that inequity aversion may be beneficial; in the presence of envy, for a certain range of interest rates, relational contracts may be more profitable. For some interest rates reputational equilibria exist only with envious agents.

Small Business Economics, Feb 10, 2023

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates m... more Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic

Economics Letters, Feb 1, 2021

Abstract We show that under multitasking — where tasks can be substitutes or complements — a spec... more Abstract We show that under multitasking — where tasks can be substitutes or complements — a specialist worker with an uneven skill distribution can outperform a generalist with higher average skills. We use a principal–agent model to study worker efficiency and welfare. The main result is robust if a rent-efficiency trade-off is added.

Social Science Research Network, 2011

In a moral-hazard environment, I compare the pro…tabilities of a rank-order tournament and indepe... more In a moral-hazard environment, I compare the pro…tabilities of a rank-order tournament and independent bonus contracts when a …rm employs two envious workers whose individual performances are not veri…able. Whereas the bonus scheme must then be self-enforcing, the tournament is contractible. Yet the former incentive regime outperforms the latter as long as credibility problems are not too severe. This is due the fact that the tournament requires unequal pay across peers with certainty, thereby imposing large inequity premium costs on the …rm. For a simple example, I show that the more envious the agents are, the larger is the range of interest rates for which the bonus scheme dominates the tournament.

We analyze the e¤ects of lower bounds on wages, e.g., minimum wages or liability limits, on job d... more We analyze the e¤ects of lower bounds on wages, e.g., minimum wages or liability limits, on job design within …rms. In our model, two tasks contribute to non-veri…able …rm value and a¤ect an imperfect performance measure. The tasks can be assigned to either one or two agents. In the absence of a wage ‡oor, it is optimal to assign the tasks to di¤erent agents whenever the agents'reservation utility is not too large. Under such a job design, the principal can tailor incentives according to each task's marginal productivity. By contrast, with a relatively large wage ‡oor, the principal gradually lowers e¤ort incentives to avoid rent payments to the agents, even before the wage ‡oor exceeds the agents' reservation utility. If the wage ‡oor is su¢ ciently large, the principal hires only one agent even though this leads to a distortion of e¤ort across tasks or the non-execution of one task altogether.

Social Science Research Network, 2010

In this paper, I compare the feasibility and the pro…tability of group vs. individual performance... more In this paper, I compare the feasibility and the pro…tability of group vs. individual performance pay when workers are envious and when veri…able signals on the workers'performances are not available. The group bonus contract is superior as long as the principal faces no credibility problem. This is due to the fact that group performance pay avoids the occurrence of inequity. However, the relational individual bonus contract may become dominant although it introduces the prospect of unequal pay. The reason is that precisely the worker's distaste for wage inequity may actually soften the principal's credibility constraint.

Social Science Research Network, 2012

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

Journal of Economic Behavior and Organization, Aug 1, 2021

The article is concerned with understanding the impact of social preferences and wealth inequalit... more The article is concerned with understanding the impact of social preferences and wealth inequality on aggregate economic outcomes. We investigate how different manifestations of societal other-regarding preferences affect labor relationships and incentive contracts at the microeconomic level and how these in turn translate into macroeconomic outcomes. Increasing the workers' sensitivity to inequality raises effort and reduces wage costs for poor but not necessarily for rich workers. A parameterized version of the model roughly mimicking relevant key features of the industrialized world shows that, at the general equilibrium, increased initial wealth differences raise aggregate profit and output but entail distributional utility losses and increased inequality.

RePEc: Research Papers in Economics, Dec 18, 2006

We study the e¤ects of envy on the feasibility of relational contracts in a standard moral hazard... more We study the e¤ects of envy on the feasibility of relational contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which re ‡ects the agent's individual contribution to …rm value. Both agents exhibit disadvantageous inequity aversion. In contrast to the literature, we …nd that inequity aversion may be bene…cial: In the presence of envy, for a certain range of interest rates relational contracts may be more pro…table. Furthermore, for some interest rates reputational equilibria exist only with inequity averse agents.

Small Business Economics, Feb 10, 2023

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates m... more Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic

VfS Annual Conference 2020 (Virtual Conference): Gender Economics, 2020

In a moral-hazard environment, I compare the profitabilities of a rank-order tournament and indep... more In a moral-hazard environment, I compare the profitabilities of a rank-order tournament and independent bonus contracts when a firm employs two envious workers whose individual performances are not verifiable. Whereas the bonus scheme must then be self-enforcing, the tournament is contractible. Yet the former incentive regime outperforms the latter as long as credibility problems are not too severe. This is due the fact that the tournament requires unequal pay across peers with certainty, thereby imposing large inequity premium costs on the firm. For a simple example, I show that the more envious the agents are, the larger is the range of interest rates for which the bonus scheme dominates the tournament.

I analyze optimal incentive pay for envious workers when performance is non-verifiable. Incentive... more I analyze optimal incentive pay for envious workers when performance is non-verifiable. Incentives are implemented as relational contracts and may be contingent on individual, joint, or relative performance. I find the optimal wage contract to depend on the severity of the rms commitment problem and the agentspropensity for envy. Group incentives are optimal whenever they can be credibly implemented because they rule out the possibility of unequal payo ¤ across workers. However, as the firms commitment ability decreases, it may wish to introduce pay inequality among co-workers, hence implementing a weaker form of joint performance pay, individual incentives, or even relative performance pay. The reason is that doing so may reestablish credibility of the incentive contracts. Surprisingly, the result is not only obtained because less equitable rewards provide stronger incentives per se but also precisely due to the agentsdistaste for wage inequality.

International Economic Review, Apr 22, 2014

We analyze the e¤ects of wage ‡oors on optimal job design in a moral-hazard model with asymmetric... more We analyze the e¤ects of wage ‡oors on optimal job design in a moral-hazard model with asymmetric tasks and imperfect aggregate performance measurement. Due to cost advantages of specialization, assigning the tasks to di¤erent agents is e¢ cient. A su¢ ciently high wage ‡oor, however, induces the principal to dismiss one agent or to even exclude tasks from the production process. Imperfect performance measurement always lowers pro…t under multitasking, but may increase pro…t under specialization. We further show that variations in the wage ‡oor and the agents'reservation utility have signi…cantly di¤erent e¤ects on welfare and optimal job design.

Social Science Research Network, 2014

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

This thesis consists of three self-contained essays that investigate the impact of fairness conce... more This thesis consists of three self-contained essays that investigate the impact of fairness concerns among agents on the efficient design of real-world incentive contracts used to mitigate moral-hazard problems under non-verifiable performance. All papers consider situations in which a firm employs two inequity averse workers whose individual performances are, albeit observable by the contracting parties, not contractible. The first paper studies the effects of inequity aversion on relational employment contracts. Performance is evaluated via an agent's individual non-verifiable contribution to firm value. In contrast to the literature, we find that inequity aversion may be beneficial: In the presence of envy, for a certain range of interest rates relational contracts may be more profitable. For some interest rates reputational equilibria exist only with envious agents. In the second paper, I compare group to individual performance pay. Avoiding payoff inequity, the group bonus contract is superior as long as the firm faces no credibility problem. The individual bonus contract may, however, become superior albeit introducing the prospect of unequal pay. This is due to two reasons: The group bonus scheme is subject to a free-rider problem requiring a higher incentive pay and impeding credibility of the firm. Moreover, with individual bonuses the firm benefits from the incentive-strengthening effect of envy, allowing for yet smaller incentive pay and further softening the credibility constraint. The third paper contrasts a rank-order tournament with independent bonus contracts. Whereas the bonus scheme must be self-enforcing, the tournament is contractible. Yet the former incentive regime outperforms the latter as long as credibility problems are not too severe. This is due the fact that the tournament requires unequal pay across peers with certainty and thus imposes large inequity premium costs on the firm. For a simple example, I show that the more envious the agents are the larger is the range of interest rates for which the bonus scheme dominates the tournament.

Social Science Research Network, 2022

Social Science Research Network, 2009

We study the effects of envy on relational employment contracts in a standard moral hazard setup ... more We study the effects of envy on relational employment contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which reflects an agent's individual contribution to firm value. Both agents exhibit horizontal disadvantageous inequity aversion. In contrast to the literature, we find that inequity aversion may be beneficial; in the presence of envy, for a certain range of interest rates, relational contracts may be more profitable. For some interest rates reputational equilibria exist only with envious agents.

Small Business Economics, Feb 10, 2023

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates m... more Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic

Economics Letters, Feb 1, 2021

Abstract We show that under multitasking — where tasks can be substitutes or complements — a spec... more Abstract We show that under multitasking — where tasks can be substitutes or complements — a specialist worker with an uneven skill distribution can outperform a generalist with higher average skills. We use a principal–agent model to study worker efficiency and welfare. The main result is robust if a rent-efficiency trade-off is added.

Social Science Research Network, 2011

In a moral-hazard environment, I compare the pro…tabilities of a rank-order tournament and indepe... more In a moral-hazard environment, I compare the pro…tabilities of a rank-order tournament and independent bonus contracts when a …rm employs two envious workers whose individual performances are not veri…able. Whereas the bonus scheme must then be self-enforcing, the tournament is contractible. Yet the former incentive regime outperforms the latter as long as credibility problems are not too severe. This is due the fact that the tournament requires unequal pay across peers with certainty, thereby imposing large inequity premium costs on the …rm. For a simple example, I show that the more envious the agents are, the larger is the range of interest rates for which the bonus scheme dominates the tournament.

We analyze the e¤ects of lower bounds on wages, e.g., minimum wages or liability limits, on job d... more We analyze the e¤ects of lower bounds on wages, e.g., minimum wages or liability limits, on job design within …rms. In our model, two tasks contribute to non-veri…able …rm value and a¤ect an imperfect performance measure. The tasks can be assigned to either one or two agents. In the absence of a wage ‡oor, it is optimal to assign the tasks to di¤erent agents whenever the agents'reservation utility is not too large. Under such a job design, the principal can tailor incentives according to each task's marginal productivity. By contrast, with a relatively large wage ‡oor, the principal gradually lowers e¤ort incentives to avoid rent payments to the agents, even before the wage ‡oor exceeds the agents' reservation utility. If the wage ‡oor is su¢ ciently large, the principal hires only one agent even though this leads to a distortion of e¤ort across tasks or the non-execution of one task altogether.

Social Science Research Network, 2010

In this paper, I compare the feasibility and the pro…tability of group vs. individual performance... more In this paper, I compare the feasibility and the pro…tability of group vs. individual performance pay when workers are envious and when veri…able signals on the workers'performances are not available. The group bonus contract is superior as long as the principal faces no credibility problem. This is due to the fact that group performance pay avoids the occurrence of inequity. However, the relational individual bonus contract may become dominant although it introduces the prospect of unequal pay. The reason is that precisely the worker's distaste for wage inequity may actually soften the principal's credibility constraint.

Social Science Research Network, 2012

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

Journal of Economic Behavior and Organization, Aug 1, 2021

The article is concerned with understanding the impact of social preferences and wealth inequalit... more The article is concerned with understanding the impact of social preferences and wealth inequality on aggregate economic outcomes. We investigate how different manifestations of societal other-regarding preferences affect labor relationships and incentive contracts at the microeconomic level and how these in turn translate into macroeconomic outcomes. Increasing the workers' sensitivity to inequality raises effort and reduces wage costs for poor but not necessarily for rich workers. A parameterized version of the model roughly mimicking relevant key features of the industrialized world shows that, at the general equilibrium, increased initial wealth differences raise aggregate profit and output but entail distributional utility losses and increased inequality.

RePEc: Research Papers in Economics, Dec 18, 2006

We study the e¤ects of envy on the feasibility of relational contracts in a standard moral hazard... more We study the e¤ects of envy on the feasibility of relational contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which re ‡ects the agent's individual contribution to …rm value. Both agents exhibit disadvantageous inequity aversion. In contrast to the literature, we …nd that inequity aversion may be bene…cial: In the presence of envy, for a certain range of interest rates relational contracts may be more pro…table. Furthermore, for some interest rates reputational equilibria exist only with inequity averse agents.

Small Business Economics, Feb 10, 2023

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates m... more Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic

VfS Annual Conference 2020 (Virtual Conference): Gender Economics, 2020

In a moral-hazard environment, I compare the profitabilities of a rank-order tournament and indep... more In a moral-hazard environment, I compare the profitabilities of a rank-order tournament and independent bonus contracts when a firm employs two envious workers whose individual performances are not verifiable. Whereas the bonus scheme must then be self-enforcing, the tournament is contractible. Yet the former incentive regime outperforms the latter as long as credibility problems are not too severe. This is due the fact that the tournament requires unequal pay across peers with certainty, thereby imposing large inequity premium costs on the firm. For a simple example, I show that the more envious the agents are, the larger is the range of interest rates for which the bonus scheme dominates the tournament.

I analyze optimal incentive pay for envious workers when performance is non-verifiable. Incentive... more I analyze optimal incentive pay for envious workers when performance is non-verifiable. Incentives are implemented as relational contracts and may be contingent on individual, joint, or relative performance. I find the optimal wage contract to depend on the severity of the rms commitment problem and the agentspropensity for envy. Group incentives are optimal whenever they can be credibly implemented because they rule out the possibility of unequal payo ¤ across workers. However, as the firms commitment ability decreases, it may wish to introduce pay inequality among co-workers, hence implementing a weaker form of joint performance pay, individual incentives, or even relative performance pay. The reason is that doing so may reestablish credibility of the incentive contracts. Surprisingly, the result is not only obtained because less equitable rewards provide stronger incentives per se but also precisely due to the agentsdistaste for wage inequality.