Other regarding preferences in hierarchies: a theoretical study oncollusive behavior and optimal contracts

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2016
Saygılı, Kemal
This thesis aims at obtaining new theoretical insights into behavior of organizational hierarchies by combining standard principal-supervisor-agent framework with theories of social preferences. Extending Tirole’s (1986) model of hierarchy with the inclusion of Fehr and Schmidt’s (1999) distributional other-regarding preferences approach, the links between inequity aversion, collusive behavior throughout the levels of a hierarchy and the changes in optimal contracts are studied. It turns out that other-regarding preferences do change the collusive behaviour between the parties. Moreover, the optimal contract parameters depend on the nature of both the agents’ and the supervisor’s other-regarding preferences. 
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K. Saygılı, “Other regarding preferences in hierarchies: a theoretical study oncollusive behavior and optimal contracts,” M.S. - Master of Science, Middle East Technical University, 2016.