Adverse Selection in Dynamic Moral Hazard
Ching-to Ma ()
The Quarterly Journal of Economics, 1991, vol. 106, issue 1, 255-275
This paper studies a multiperiod moral hazard problem under two assumptions: (i) contracts are subject to renegotiations; (ii) the agent's action has long-term effects. The action is also interpreted as a choice of characteristic or "type." Renegotiation-proof contracts that implement various actions, including random ones, are characterized. Under appropriate conditions, the equilibrium involves the principal implementing a random action. Therefore, the equilibrium has standard properties of "adverse selection" models.
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Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:106:y:1991:i:1:p:255-275.
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