Contract Choice: Efficiency and Fairness in Revenue‐Sharing Contracts

Abstract

Abstract We present a simple principal–agent experiment in which the principals are allowed to choose between a revenue‐sharing, a bonus, and a trust contract, to offer to an agent. Our findings suggest that a large majority of experimental subjects choose the revenue‐sharing contract. This choice turns out to be not only the most efficient but also, at the same time, fair. Overall, the distribution of earnings is only mildly skewed towards the principal. We conclude that, under revenue‐sharing contracts, concerns for fairness can be closely associated with the use of monetary incentives.