Informed principal, moral hazard, and limited liability

Teddy Mekonnen

Economic Theory Bulletin, 2021, vol. 9, issue 1, No 11, 119-142

Abstract: Abstract I consider a moral hazard problem with risk neutral parties, limited liability, and an informed principal. The contractible outcome is correlated to both the principal’s private information and the agent’s hidden action. In contrast to a model without a privately informed principal or without limited liability, I show that the first-best payoff cannot be implemented by any equilibrium mechanism.

Keywords: Informed principal; Limited liability; Surplus extraction (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s40505-021-00201-3

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