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  3. American Economic Review
  4. January 2022
  5. A/B Contracts

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

A/B Contracts

  • George Georgiadis
  • Michael Powell
American Economic Review
vol. 112, no. 1, January 2022
(pp. 267–303)
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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 sufficient 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.

Citation

Georgiadis, George, and Michael Powell. 2022. "A/B Contracts." American Economic Review, 112 (1): 267–303. DOI: 10.1257/aer.20200732

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • D86 Economics of Contract: Theory
  • D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making