Simple contracts with adverse selection and moral hazard
Daniel Gottlieb () and
Humberto Moreira ()
Additional contact information
Daniel Gottlieb: LSE
Humberto Moreira: FGV/EPGE Brazilian School of Economics and Finance
Theoretical Economics, 2022, vol. 17, issue 3
Abstract:
We study a principal-agent model with moral hazard and adverse selection. Risk-neutral agents with limited liability have arbitrary private information about the distribution of outputs and the cost of effort. We show that under a multiplicative separability condition, the optimal mechanism offers a single contract. This condition holds, for example, when output is binary. If the principal's payoff must also satisfy free disposal and the distribution of outputs has the monotone likelihood ratio property, the mechanism offers a single debt contract. Our results generalize if the output distribution is "close" to multiplicatively separable. Our model suggests that offering a single contract may be optimal in environments with adverse selection and moral hazard when agents are risk neutral and have limited liability.
Keywords: Principal-agent problem; contract theory; mechanism design (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2022-07-14
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)
Downloads: (external link)
http://econtheory.org/ojs/index.php/te/article/viewFile/20221357/34331/1020 (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:the:publsh:2992
Access Statistics for this article
Theoretical Economics is currently edited by Simon Board, Todd D. Sarver, Juuso Toikka, Rakesh Vohra, Pierre-Olivier Weill
More articles in Theoretical Economics from Econometric Society
Bibliographic data for series maintained by Martin J. Osborne ().