Moral Hazard: Messages, Delegation and Efficiency

Andrea Attar, Eloisa Campioni, Gwenaël Piaser () and Uday Rajan
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Gwenaël Piaser: CREFI-LSF, University of Luxembourg

Working Papers of CREFI-LSF (Centre of Research in Finance - Luxembourg School of Finance) from CREFI-LSF, University of Luxembourg

Abstract: A the present paper we show that messages may improve efficiency even in model of complete information. Messages are useful two main reasons. First, if the principal is not allowed to use stochastic mechanisms, mechanisms with messages can induced mixed strategies and hence indirectly a stochastic outcome. Second, even if stochastic mechanisms are allowed, messages can allow correlation between efforts and outcome. We then argue that indirect mechanisms can be interpreted as delegation and show how simple indirect mechanisms can improve efficiency in a simple model of moral hazard.

Keywords: Efficiency; Moral Hazard; Messages; Correlated Equilibrium; Recommendation; Delegation. (search for similar items in EconPapers)
JEL-codes: D82 D83 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-mic
Date: 2008

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