Ex post participation constraint in a principal–agent model with adverse selection and moral hazard

Sandrine Ollier and Lionel Thomas

Journal of Economic Theory, 2013, vol. 148, issue 6, 2383-2403

Abstract: This paper analyzes optimal contracting when an agent has private information before contracting and exerts hidden effort that stochastically affects the output. Additionally, the contract is constrained to satisfy the agentʼs ex post participation. We highlight three features of this model. First, the agent faces countervailing incentives. Second, the separation of types is never optimal. Third, the optimal constant bonus rewarding success is distorted downward below its efficient level.

Keywords: Ex post participation; Adverse selection; Moral hazard; Countervailing incentives; Pooling contracts (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:6:p:2383-2403

DOI: 10.1016/j.jet.2013.07.007

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