Moral hazard in welfare economics: on the advantage of Planner's advices to manage employees' actions

Thibaut Mastrolia
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Thibaut Mastrolia: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, we study moral hazard problems in contract theory by adding an exogenous Planner to manage the actions of Agents hired by a Principal. We provide conditions ensuring that Pareto optima exist for the Agents using the scalarization method associated with the multi-objective optimization problem and we solve the problem of the Principal by finding optimal remunerations given to the Agents. We illustrate our study with a linear-quadratic model by comparing the results obtained when we add a Planner in the Principal/multi-Agents problem with the results obtained in the classical second-best case. More particularly in this example, we give necessary and sufficient conditions ensuring that Pareto optima are Nash equilibria and we prove that the Principal takes the benefit of the action of the Planner in some cases.

Keywords: Pareto efficiency; multi-objective optimization problems; BSDE; Moral hazard; Nash equilibrium (search for similar items in EconPapers)
Date: 2017-04-10
New Economics Papers: this item is included in nep-cta, nep-hpe and nep-mic
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Citations: View citations in EconPapers (3)

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