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Bénabou, Roland (Princeton) and Jean Tirole (IDEI), 'Belief in a Just World and Redistributive Politics'.
This paper offers a model that helps explain: i) why most people feel such a need to believe in a 'just world'; ii) why this need, and therefore the prevalence of the belief, varies considerably across countries; iii) the implications of this phenomenon for international differences in political ideology, levels of redistribution, labour supply, aggregate income, and popular perceptions of the poor. The model shows in particular how complementarities arise endogenously between individuals' desired beliefs or ideological choices, resulting in two equilibria. A first, 'American' equilibrium is characterized by a high prevalence of just-world beliefs among the population and relatively laissez-faire policies. The other, 'European' equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state. More generally, the paper develops a theory of collective beliefs and motivated cognitions, including those concerning 'money' (consumption) and happiness, as well as religion.
Bénabou, Roland (Princeton) and Jean Tirole (IDEI), 'Incentives and Prosocial Behaviour'.
Profs. Bénabou and Tirole built on a theory of prosocial behaviour that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. The presence of rewards or punishments creates doubt as to the true motive for which good deeds are performed, and this 'over-justification effect' can result in a net crowding out of prosocial behaviour by extrinsic incentives. The model also allowed them to identify settings that are conducive to multiple social norms of behaviour, and those where disclosing one's generosity may backfire. Finally, they analysed the equilibrium contracts offered by sponsors, including the level and confidentiality or publicity of incentives. Sponsor competition may cause rewards to bid down rather than up, and can even reduce social welfare by requiring agents to engage in inefficient sacrifices.
Gromb, Denis (CEPR) and David Martimont (IDEI), 'The Organisation of Delegated Expertise'.
This Paper proposes a theory of the optimal organization of delegated expertise. For incentive purposes, a principal should reward an expert when their recommendation is confirmed either by the facts or by other experts' recommendations. With a single expert, we show that the agency costs of delegated expertise exhibit diseconomies of scale. Possible organizational responses to this problem include basing decisions on a less than optimal amount of information, and relying on multiple experts. We analyse the source of gains from having multiple experts in different contracting environments corresponding to different nexi of collusion between the principal and/or the experts.
Fehr, Ernst (Zürich) and Klaus Schmidt (München), 'Fairness and Incentives in a Multi-Task Principle-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 behaviour contradicts the self-interest theory but is consistent with theories of fairness.
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