Incentives, Moral Hazard and Adverse Selection

Silvia Platoni

No dises1057, DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: This paper proposes a model which analyses not only the provision of incentives (see, e.g., Gershkov et. al 2006 and Huck et al. 2001) and the moral hazard problem (see, e.g., Holmstrom 1982), but also the adverse selection problem (i.e. the workers are heterogeneous). Moreover, unlike the previous works, the paper introduces also the time dimension: we consider a firm with an infinite time horizon and individuals whose working life is split into two phases, the young phase and old phase. By comparing the results of the classical incentives scheme with those of a rewarding incentives scheme, we can conclude that this last scheme allows a higher production level.

Keywords: asymmetric information; incentives (search for similar items in EconPapers)
JEL-codes: D23 D82 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2009-11
New Economics Papers: this item is included in nep-cta
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