摘要：The paper analyzes an ex-ante contracting with limited liability constraints when agentsfeel envious of othersʼ higher wages. We show that depending on the degree of limited liabilityconstraints, the principal requires various distortions in output at both the top and bottomproductivity levels for agentʼs type. Compared to the result without envy, the output gapbetween efficient and inefficient agents is less spread out. Moreover, when the degree of envyis sufficiently large, bunching can always occur. Hence, the first-best solutions for both types ofagent are never obtained with envy regardless of the burden of limited liability.
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