Moral Hazard: Base Models and Two Extensions

David Pérez-Castrillo and Ines Macho-Stadler
Authors registered in the RePEc Author Service: David Perez-Castrillo

No 883, Working Papers from Barcelona School of Economics

Abstract: We analyze the optimal contract in static moral hazard situations, where the agentÂ’s effort is not veriÂ…able. We fiÂ…rst 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-veriÂ…able effort). Then, we discuss two recent extensions: how incorporating behavioral biases in the analysis of incentives affects the predictions of the classical moral hazard model, and the insertion of the principal-agent problem in a matching market.

Keywords: matching; moral hazard; behavioral approach (search for similar items in EconPapers)
JEL-codes: C78 D03 D86 (search for similar items in EconPapers)
Date: 2016-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Chapter: Moral hazard: Base models and two extensions (2018)
Working Paper: Moral Hazard: Base Models and Two Extensions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:883

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