Optimal Design of Internal Disclosure

Dmitry Orlov
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Dmitry Orlov: Stanford Graduate School of Business

No 314, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the joint design of optimal incentive pay and information disclosure in a dynamic moral hazard problem. The principal is more informed about the outcomes of agent's actions and actively manages information available to the agent. Sharing information with the agent increases productivity (for example, allowing a better allocation of resources or effort), but increases the cost of providing incentives. The optimal contract features incomplete information sharing with positive information shared more than negative information and past negative information leading to less information sharing in the future.

Date: 2014
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:314

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