Fairness and Incentives in a Multi-Task Principal-Agent Model

This paper reports on a two-task principal-agent experiment in
which only one task is contractible. The principal can either offer
a piece-rate contract or a (voluntary) bonus to the agent. Bonus
contracts strongly outperform piece rate contracts. Many principals
reward high efforts on both tasks with substantial bonuses. Agents
anticipate this and provide high efforts on both tasks. In
contrast, almost all agents with a piece rate contract focus on the
first task and disregard the second. Principals understand this and
predominantly offer bonus contracts. This behavior contradicts the
self-interest theory but is consistent with theories of fairness.