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Moral Hazard and Observability

Bengt Holmstrom ()

Bell Journal of Economics, 1979, vol. 10, issue 1, 74-91

Abstract: The role of imperfect information in a principal-agent relationship subject to moral hazard is considered. A necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived, and a characterization of the optimal use of such information is given.

Date: 1979
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