Short-run immiseration in repeated moral hazard

Pedro Hemsley ()
Additional contact information
Pedro Hemsley: FCE/UERJ

Economics Bulletin, 2016, vol. 36, issue 3, 1479-1485

Abstract: In standard models of infinitely-repeated moral hazard with risk aversion, the agent´s continuation value from the relationship with the principal decreases non-monotonically over time and diverges to minus infinity almost surely, meaning that the agent gets most of the compensation in the early stages of the relationship and is left with little to receive in the future. In the short run, however, this pattern is less clear as continuation values may drift up as a response to good outcomes. I provide conditions under which the drift upwards is small and the probability of increased continuation values is very low even for short periods. Hence the immiseration result, an asymptotic property, is a good approximation in the short run.

Keywords: Contract theory; repeated moral hazard; immiseration result (search for similar items in EconPapers)
JEL-codes: D8 L2 (search for similar items in EconPapers)
Date: 2016-08-03
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I3-P146.pdf (application/pdf)

Related works:
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:ebl:ecbull:eb-16-00102

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().