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Contracting with Repeated Moral Hazard and Private Evaluations

William Fuchs

Game Theory and Information from EconWPA

Abstract: A repeated moral hazard setting in which the Principal privately observes the Agent fs output is studied. It is shown that there is no loss from restricting the analysis to contracts in which the Agent is supposed to exert effort every period, receives a constant efficiency wage and no feedback until he is fired. The optimal contract for a finite horizon is characterized, and shown to require burning of resources. These are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor (ƒÂ). For the infinite horizon case a family of fixed interval review contracts is characterized and shown to achieve first best as ƒÂ ¨ 1. The optimal contract when ƒÂ

Keywords: Repeated Moral Hazard; Private Monitoring; Efficiency Wages (search for similar items in EconPapers)
JEL-codes: C7 D8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2005-11-21
Note: Type of Document - pdf; pages: 40
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Journal Article: Contracting with Repeated Moral Hazard and Private Evaluations (2007) Downloads
Working Paper: Contracting with Repeated Moral Hazard and Private Evaluations (2005) Downloads
Working Paper: Contracting with Repeated Moral Hazard and Private Evaluations (2005) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpga:0511007

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