Moral Hazard: Base Models and Two Extensions

Ines Macho-Stadler and David Perez-Castrillo

No 5851, CESifo Working Paper Series from CESifo

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 affects the predictions of the classical moral hazard model, and the insertion of the principal-agent problem in a matching market.

Keywords: moral hazard; behavioral approach; matching (search for similar items in EconPapers)
JEL-codes: C78 D03 D86 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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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:ces:ceswps:_5851

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