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A/B Contracts

Author

Listed:
  • George Georgiadis
  • Michael Powell

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.

Suggested Citation

  • George Georgiadis & Michael Powell, 2022. "A/B Contracts," American Economic Review, American Economic Association, vol. 112(1), pages 267-303, January.
    • Handle: RePEc:aea:aecrev:v:112:y:2022:i:1:p:267-303
    DOI: 10.1257/aer.20200732
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    More about this item

    JEL classification:

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

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