Study On The Incentive Mechanisms Based On Fairness Preference

Incentive theory is a core of economic management. The research for incentive theory benefits enterprises and society. The views of people possessing fairness preference are accepted by management theory and business circles. But the normal incentive theory is set up on the hypothesis that people is complete selfish which means people's decision-making rests with maximizing individual substantial benefits. And the normal incentive theory ignores fairness preference with most people. Recently a large numbers of experiment research approve people possessing fairness preference which influence social and economic activities widely. Applying behavioral theory into normal economics is becoming research hotspot in economics nowadays. Lately some scholars abroad are applying the theory about fairness preference into study for incentive theory. But the academic researches in the economic field are at the beginning stage and they are nearly blank in China. Many academic problems still need to be resolved.In fairness preference theory, the model of Fehr & Schmidt (1999) is accepted and applied due to its simplicity and applicability. Based on the fairness preference model, this dissertation sets up different models appropriately in order to study the incentive mechanism and efficiency for individual and team. How agents'effort, incentive mechanisms, and principal utility and team efficiency are affected by the fairness preference of agent is analyzed in the way of combining information economic theory with game theory. And illuminating and validating and demonstrating some research conclusion with some appropriate cases and calculating cases. This research is expected to modify or perfect the research of normal incentive mechanisms, searching for new theory to explain the problems about incentive in reality, and providing new instructions for incentive mechanisms in enterprises. This dissertation tries to set up a theoretical platform for the research of the behavioral firm theory.The main conclusions of this paper are as follows:①On the output-share incentive mechanisms, On the hypothesis of agents possessing envy preference and pride preference, The research result are as follows:1) On the condition of asymmetry information. The fairness preference does not influence agents optimum effort. Optimum output-share proportion is increasing in fairness preference. When principals exceed agents in pure income, optimum fix income is increasing in fairness preference. Principal utility is decreasing in fairness preference. 2) On the condition of asymmetry information. Agent optimum effort is decreasing in fairness preference. How does the fairness preference influence optimum output-share proportion depends on'tradition gene'. Fairness preference influencing principal utility and optimum fix income is ambiguity.3) When'tradition gene'is enough large, General Agent Cost is decreasing in fairness preference.②On the tournament incentive mechanisms. On the hypothesis of agents possessing envy preference and compassionate preference, the research result are as the follows:1) Homogenous agents. Fairness preference induces agents effort to efficiency equilibrium. Relative to pure selfish agents, the higher wage should be decreased, the lower wage should increase for fairness preference agents, and the wage gape is smaller.2) Heterogeneous agents. When agents have same abilities and different fairness preference, efficiency level could be reached. When agents have different abilities, separate tournament schemes inspire agents with fairness preference work efficiently, a mixed tournament schemes,however, cannot bring about the same effect and agents cannot self-sort into their respective capability group. Agents with lower capability would be adverse selection.③On the output-share based on ability mechanisms. On the hypothesis of agents possessing envy preference and compassionate preference/pride preference. Fairness preference cannot stimulate agents'effort to the level of Pareto optimal efficiency, but can relieve moral hazard problems with budget balancing constraint and lead team cooperation to Pareto improvement when agents have appropriate fairness preference. When agents have no appropriate fairness preference, more serious moral hazard problems could emerge. Instead of'real share proportion','latent output-share proportion'is an incentive factor for agents, which is increasing in pride preference, and decreasing in envy preference and compassionate preference.④On output-share average mechanisms. On the hypothesis of agents possessing envy preference and compassionate preference. Fairness preference and belief in'lazy man number'could at least lead team cooperation to Pareto improvement with budget balancing constraint when agents have appropriate fairness preference. Probability of effort is decreasing in envy preference and belief in'lazy man number'. Probability of effort is increasing in compassionate preference.⑤In the tournament incentive mechanism and the output-share mechanism. On the hypothesis of agents possessing envy preference and compassionate preference, the research result are as the follows:1) On the tournament incentive mechanismsa. Fairness preference incentives agents make more effort in his own task, and more effort to sabotage on other people task.b. More Sabotage effort induces agents effort cost, incentive on self-effort from fairness preference will be strengthened and incentive on sabotage-effort from fairness preference will be weakened. More sabotage effort influence other people task, Incentive on own effort from fairness preference will be weakened and Incentive on sabotage effort from fairness preference will be enhanced.c. Optimum wage gap and principal utility is influenced by fairness preference and'help cost gene'and'help output gene'together. If only condition suffice, principal utility can be increased.2) On output-share average mechanismsa. Self-effort level from agents with higher rent is as same as agents with lower rent. Self-effort level is not influenced by fairness preference. Agents with higher rent selects help-effort which is increased in his compassion preference. And agents with lower rent selects sabotage-effort which is increased in his envy preference.b. Without help factor impact. Optimum output-share rate is 1. Optimum fix wage is increasing in the fairness preference. Optimum principal utility is decreasing in the fairness preference. Optimum fix wage of the agents with fairness preference is more than the selfish agents. Optimum principal utility in employing agents with fairnenss preference is less than in employing selfish agents.