The Exploration Of The Characteristics Of Inequity Averse:Experimental Study On The Effectiveness Of Executive Compensation Contract

Incentive theory is the core and research priorities of the contemporary economics and management. The existing traditional principal-agent theory constructed a system of incentive theory analysis framework based on self-interest assumption, but results of the low sensitivity between compensation and performance and many other incentive paradox make us have to re-examine the classic principal agent model, and try to use the law of psychological theory to weaken the ideal assumptions to seek behavioral game approach that develops the theoretical model. Lots of research shows people are generally inequity-averse besides self-interest, and the inequity-averse theory explains a lot of phenomena while traditional incentive theory could not. But how to pull the inequity-averse factor in the traditional principal-agent theory, construct behavioral principal-agent theory analysis framework have become the focus and difficulty in the study of this field. Obviously, discovering the characteristics of inequity-averse has a great significance to open up a new perspective for the study of the behavioral principal-agent theory.Under the guidance of behavioral economics, experimental economics, behavioral game theory and principal-agent theory, using this special group of managers who have a critical impact on business performance In our markets as the research object, through implementing reference-dependent experiment, dictator game experiment, ultimatum game experiment, lottery questions, model deduction and laboratory controlled dynamic online principal-agent game experiments, this thesis explores the characteristics of inequity-averse, investigates the relation between inequity-averse and risk attitude, solves the problem of rationality of pulling the inequity-averse factor in the traditional principal-agent model and verifies the validity of behavioral principal-agent model’s equilibrium solution.Main research results in this paper are listed here.1. Explore the internal qualities of inequity aversion.Through designing and implementing reference-dependent experiment, we find disadvantage inequity-averse and pride preference both show a decreased sensitivity to the first, and then show a increased sensitivity after a turning point, and jealousy preference disadvantage inequity-averse and pride preference almost have the same Inflection point feature. Advantage inequity-averse shows a decreased sensitivity and has no any turning point. The three marginal utilities differ from each other, and disadvantage inequity-averse is the most steep while advantage inequity-averse is the most gentle. The marginal utility of disadvantage inequity-averse is almost10times that of advantage inequity-averse, and pride preference’s marginal utility is almost2times that of advantage inequity-averse.2. Find the evidence that disadvantage inequity-averse is significantly associated with risk-averse.We measure the advantage inequity-averse, disadvantage inequity-averse and risk attitude of the subjects by implementing dictator game, ultimatum game and lottery questions. Then we find people’s risk-averse is significantly associated with their disadvantage inequity-averse, and the correlation is0.51, that is, people who show stronger risk-averse show higher disadvantage inequity-averse. While risk-averse is not significantly associated with advantage inequity-averse, and disadvantage inequity-averse is not significantly associated with advantage inequity-averse, and disadvantage inequity-averse is not always greater than advantage inequity-averse.3. Pull inequity-averse factor in traditional principal-agent model in reason and analyze the equilibrium solution.We pull disadvantage inequity-averse and advantage inequity-averse in the classic principal-agent model separately, and find whether under the symmetric information or under asymmetric information, disadvantage inequity-averse has an important impact to optimal output sharing rate, fixed wage and the principal’s expected utility by the mathematical deduction. Under championship mechanism, when the agent’s wage structure and monitoring efforts keep constant, the agent’s optimal efficiency level of effort decreases with the increase in risk-averse, increases with the increase in disadvantage inequity-averse, decreases with the increase in advantage inequity-averse.4. Implement laboratory controlled dynamic online principal-agent game experiments about the agent with inequity-averse under different risk-averse level and verify the validity of the optimal solution.We use z-Tree experimental economics software to control laboratory controlled experiments, and under the combination of different degree of risk-averse and disadvantage inequity-averse, investigate the significance of subjects choosing the optimal solution. Experiment results show shareholders significantly choose the optimal theoretical compensation contract at95%level of confidence interval, and managers significantly choose the optimal theoretical effort at95%level of confidence interval, and they simultaneously significantly choose the optimal theoretical compensation contract and he optimal theoretical effort at95%level of confidence interval.Moreover, shareholders and managers behave a strong learning effect in our experiment.