Abstract
When workers are paid salary from organization, inequity with other workers arises naturally. Because inequity aversion preference may significantly affect policy and contracting decisions, it is important to analyze impact of the attitudes of workers toward inequity on contracting issues.
This paper aims at obtaining new theoretical insights by combing the standard moral hazard model of principal-agent relationship with theories of inequity averse preferences, in particular, inequity which exists when worker compares with ratio of the outcome to the inputs with the ratio of other's outcome to the inputs. Then we try to answer a research question ''what is the best incentive system for principal''.
