The Design of Sharing Contract and the Explanation of Contract Government Paradox Based on Fairness Preference

This paper considers that the low sensitivity paradox of contract government mainly roots in the contract design in which fairness preference is taken into account. Therefore, the paper is based on fairness preference revealed by game experiment, and considers that operator may take owner as the reference point of income comparisons when negotiation power of operator´s heterogeneous human capital is enhanced during the course of income comparisons. And then the paper incorporates fairness preference factor of non-self-concern into utility function of operator via social utility function of fairness preference developed by Fehr & Schmid. On the basis of those, the paper studies incentive compatibility and optimal effort level of performance-pay, then makes new explanation to low sensitivity of sharing contract government. Finally, the research will enrich the new rising analytical paradigm-behavioral contract theory.