Informed-principal problem with moral hazard, risk neutrality, and no limited liability

Christoph Wagner, Tymofiy Mylovanov () and Thomas Tröger
Authors registered in the RePEc Author Service: Thomas Troeger

Journal of Economic Theory, 2015, vol. 159, issue PA, 280-289

Abstract: We consider a principal–agent moral-hazard problem with risk-neutral parties and no limited liability in which the principal has private information. The principal's private information creates signaling considerations that may distort the implemented outcome. These distortions can explain, e.g., efficiency wages (Beaudry, 1994) and muted incentives (Inderst, 2001). We show that in a large class of environments these distortions vanish if the principal is allowed to offer sufficiently rich contracts.

Keywords: Information rents; Informed principal; Mechanism design; Moral hazard; Signaling (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:159:y:2015:i:pa:p:280-289

DOI: 10.1016/j.jet.2015.05.004

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