A Simple Impossibility Result in Behavioral Contract Theory

Anna Maria Menichini, Giovanni Immordino and Maria Romano

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: The paper analyses, within a moral hazard scenario, a contract between an agent with anticipatory emotions and a principal who responds strategically to those emotions. The agent receives a private signal on the profitability of the task he was hired for. If the signal is informative about the return from effort, the agent would benefit from knowing accurate news. However, if the agent derives utility from the anticipation of his final payoff, the suppression of a bad signal may induce a positive interim emotional effect. We show that it may be impossible to achieve the first-best, even though the risk-neutral parties are symmetrically informed at the contracting stage and complete contracts can be written.

Keywords: Hidden action; anticipatory utility. (search for similar items in EconPapers)
JEL-codes: D86 (search for similar items in EconPapers)
Date: 2010-10-18
New Economics Papers: this item is included in nep-cbe, nep-cta and nep-upt
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Citations: View citations in EconPapers (1)

Published in Economic Letters 113 (2011) 307-309

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http://www.csef.it/WP/wp262.pdf (application/pdf)

Related works:
Journal Article: A simple impossibility result in behavioral contract theory (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:262

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