Moral hazard: Base models and two extensions

Ines Macho-Stadler and David Perez-Castrillo

Chapter 16 in Handbook of Game Theory and Industrial Organization, Volume I, 2018, pp 453-485 from Edward Elgar Publishing

Abstract: We analyze the optimal contract in static moral hazard situations, where the agent’s effort is not verifiable. We first present the main trade-offs of the principal–agent model. We cover the trade-off of incentives (motivation) vs risk sharing (efficiency), incentives vs rents (when the agent is protected by limited liability), incentives to a task vs incentives to another (in a multitask situation), and incentives to the agent vs incentives to the principal (when both exert a non-verifiable effort). Then, we discuss two recent extensions: how incorporating behavioral biases in the analysis of incentives and inserting the principal–agent problem in a matching market affect the predictions of the classical moral hazard model.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Moral Hazard: Base Models and Two Extensions (2016)
Working Paper: Moral Hazard: Base Models and Two Extensions (2016)
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