Inequity aversion in three level hierarchies

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2022-2

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Tel, Muhammed

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This thesis studies the impacts of wage differences between employees and their immediate superiors in the principal-supervisor-agent framework. It integrates Fehr and Schmidt's (1999) inequity aversion approach into Tirole's (1986) three-level hierarchical model. Due to the inequity averse employees, we observe alterations in the optimal contract parameters as well as the collusion structure. If the supervisor’s sensitivity to being behind the principal is higher than the agent’s sensitivity to being behind the supervisor, the effort level induced by the principal is lower.

Subject Keywords

Inequity aversion, Other-regarding preferences, Three level hierarchies, Optimal contract design, Collusive behavior

URI

https://hdl.handle.net/11511/96052

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Graduate School of Social Sciences, Thesis

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Citation Formats

M. Tel, “Inequity aversion in three level hierarchies,” M.S. - Master of Science, Middle East Technical University, 2022.