Fair or Selfish? - Choosing the Right Agent for the Job

This article examines whether a principal prefers to hire a fair or a selfish agent. A fair agent cares to some extent for the well-being of other people and thus he also cares for the principal. Therefore, if the agent performs solitary work, the principal is always better off to hire a fair agent. However, we show that when a third party with conflicting interests is introduced, it may be advantageous for the principal to hire a selfish agent. The reason is that the selfish agent will be a tough bargainer not only when negotiating his employment contract with the principal but also when dealing with the third party, e.g., when selling the principal’s product to a buyer. We compare the differences between internal and external third parties and show that for external third parties the principal more often prefers to employ a selfish agent.