An employment contract with fairness preference

This paper explores the problem of principal´s optimal decision on employment contract design, from the principal´s perspective of maximizing the expected welfare in an uncertain environment with one principal and two agents, where both the two agents have properties of fairness preference. By describing the agents´ effort as random variables, and devising the contract as a vector with two dimensions: fixed wage variable and share proportion variable, a new employment contract model with fairness preference is developed in the framework of incentive theory, particularly, the properties of the optimal efforts are discussed. The results show that the agents´ optimal efforts are independent to the fixed wage, but increasing with respect to the share proportion, moreover, the agents would like to spend more effort to increase the output, if himself is fairness preferred, or the other agent is competitive preferred.