Moral Hazard and Horizontal Information

Anastasios Papanastasiou

Department of Economics Working Papers from McMaster University

Abstract: This paper examines a moral hazard problem where the principal observes a location signal of the agent's unobserved effort. When the agent incurs costlier effort the demand for the agent's services is ex-ante more spread out over a location measure of demand. If location outcomes are informative about the agents action and verifiable, the principal can improve efficiency by contracting on such information. The introduction of location information suggests that the optimal contract that maximizes expected market size can be locally decreasing in sales when small-market location outcomes are a strong signal of high effort.

JEL-codes: D82 D86 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2017-06-27
New Economics Papers: this item is included in nep-hrm and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2017-10

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