American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Optimal Contract under Moral Hazard with Soft Information
American Economic Journal: Microeconomics
vol. 5,
no. 4, November 2013
(pp. 55–80)
Abstract
I study a model of moral hazard with soft information: the agent alone observes the stochastic outcome of her action; hence the principal faces a problem of ex post adverse selection. With limited instruments the principal cannot solve these two problems independently; the ex post incentive for misreporting interacts with the ex ante incentives for effort. This affects the shape and properties of the optimal contract, which fails to elicit truthful revelation in all states. In this setup audit and transfer become strategic complements; this is rooted in the nonseparability of the problem.Citation
Roger, Guillaume. 2013. "Optimal Contract under Moral Hazard with Soft Information." American Economic Journal: Microeconomics, 5 (4): 55–80. DOI: 10.1257/mic.5.4.55Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
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