Contracts with Wishful Thinkers

Giovanni Immordino, Anna Maria Menichini and Maria Romano

Journal of Economics & Management Strategy, 2015, vol. 24, issue 4, 863-886

Abstract: In a setting with a wishful thinking agent and a realistic principal, the paper studies how incentive contracts should be designed to control for both moral hazard and self‐deception. The properties of the contract that reconcile the agent with reality depend on the weight the agent attaches to anticipatory utility. When this is small, principal and agent agree on full recollection. For intermediate values the principal bears an extra cost to make the agent recall bad news. For large weights, the principal gives up on inducing signal recollection. We also extend the analysis to the case in which the parameter of anticipatory utility is private information.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/jems.12113

Related works:
Working Paper: Contracts with Wishful Thinkers (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:24:y:2015:i:4:p:863-886

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=1058-6407&site=1

Access Statistics for this article

More articles in Journal of Economics & Management Strategy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().