Moral hazard with the (unlikely) possibility of catastrophes

Ziemowit Bednarek and Pratish Patel

Economics Letters, 2014, vol. 124, issue 3, 386-388

Abstract: Without sacrificing tractability, we analyze the effect of fat-tailed events such as catastrophes on the optimal compensation contract between a principal and an agent. The optimal contract depends on all the moments and not just the variance.

Keywords: Moral hazard; Cumulants; Rare disasters; Optimal contract; Skewness (search for similar items in EconPapers)
JEL-codes: D82 D86 J41 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:3:p:386-388

DOI: 10.1016/j.econlet.2014.06.035

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