| Chapter 1 studies a principal-agent model with one principal and one agent, in which the (effort-dependent) realization of output levels is ambiguous, and the agent is ambiguity averse (while the principal is ambiguity neutral). Introducing ambiguity aversion will lower profits if the action that the principal wants to implement is the most ambiguous one, while they may increase otherwise. Regarding the design of the optimal contract, under ambiguity aversion the optimal incentive scheme may not be monotone even if a natural generalization of the monotone likelihood ratio property is satisfied, and it is illustrated how this fact could affect the design of contracts in an applied economic context. Moreover, the individual rationality constraint need not bind under ambiguity aversion unless preferences satisfy constant absolute ambiguity aversion.Chapter 2 analyzes the effects of ambiguity aversion for incentive contracts when there are at least two agents. In this case ambiguity, and particularly ambiguity aversion, make it more attractive for the principal to choose a tournament: If agents are risk neutral, but ambiguity averse, the set of optimal incentive schemes contains a tournament. Moreover, if ambiguity is rich enough, a wage contract can be optimal only if the total wage payment is independent of the realized output levels. When agents are both risk averse and ambiguity averse, tournaments need not be optimal, but ambiguity and ambiguity aversion still favor, in many cases, the use of tournaments over wage schemes that only depend on each agent's own output level.Chapter 3 tests these theoretical predictions in an experimental setting. It focuses on the question whether indeed agents find tournaments more attractive under ambiguity. For many participants in our laboratory experiment this is the case, suggesting that ambiguity aversion could have important implications for the design of incentive contracts. However, the effect of ambiguity seems smaller than in a comparable Ellsberg-style experiment. We discuss to which extent mathematical difficulties in understanding the contracts as well as the desire of participants to avoid competitive situations may explain this difference. |
