Contract choice: efficiency and fairness in revenue sharing contracts

We present a simple principal-agent experiment in which the principals are allowed to choose between a revenue sharing, a bonus and a trust contract, to offer to an agent. We conducted the experiment in both one-shot and repeated settings. Our findings suggest that a large majority of experimental subjects choose the revenue sharing contract. This choice not only turns out to be the most efficient but at the same time is fair. In the repeated setting, a majority of principals switches to a revenue sharing contract, which is beneficial to both principals and agents. Overall, the distribution of earnings is only mildly skewed towards the principal. We conclude that under revenue sharing contracts concerns for fairness can go in hand with the use of monetary incentives.