REPEATED MORAL HAZARD AND CONTRACTS WITH MEMORY: THE CASE OF RISK‐NEUTRALITY

Susanne Ohlendorf and Patrick Schmitz
Authors registered in the RePEc Author Service: Susanne Goldlücke

International Economic Review, 2012, vol. 53, issue 2, 433-452

Abstract: We consider a repeated moral hazard problem where both the principal and the wealth‐constrained agent are risk‐neutral. In each of two periods, the agent can exert unobservable effort, leading to success or failure. Incentives provided in the second period act as carrot and stick for the first period, so that the effort level induced in the second period is higher after a first‐period success than after a failure. If renegotiation cannot be prevented, the principal may prefer a project with lower returns; i.e., a project may be “too good” to be financed or, similarly, an agent can be “overqualified.”

Date: 2012
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Citations: View citations in EconPapers (75)

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https://doi.org/10.1111/j.1468-2354.2012.00687.x

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Working Paper: Repeated moral hazard and contracts with memory: The case of risk-neutrality (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:53:y:2012:i:2:p:433-452

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