On the moral hazard problem without the first-order approach

Ohad Kadan and Jeroen M. Swinkels

Journal of Economic Theory, 2013, vol. 148, issue 6, 2313-2343

Abstract: We study the moral hazard problem without the first-order approach or other common structure. We present sufficient conditions under which the shadow value of simultaneously tightening the minimum payment and individual rationality constraints has a simple and intuitive expression. We then show how this expression can be used to perform comparative statics exercises in which we study (i) the effect of a change in the agentʼs wealth on the well-being of the principal; and (ii) the effects of the outside option and minimum payment on the effort level optimally implemented.

Keywords: Principal–agent; Moral hazard; First-order approach (search for similar items in EconPapers)
JEL-codes: D86 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:6:p:2313-2343

DOI: 10.1016/j.jet.2013.08.001

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