The moral hazard problem with high stakes
| Autor: | Jeroen M. Swinkels, Hector Chade |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
Economics and Econometrics
Computer science Moral hazard Comparative statics media_common.quotation_subject 05 social sciences Principal (computer security) Principal–agent problem Reservation Microeconomics Action (philosophy) 0502 economics and business Value (economics) Quality (business) 050207 economics 050205 econometrics media_common |
| Zdroj: | Journal of Economic Theory. 187:105032 |
| ISSN: | 0022-0531 |
| Popis: | We study the moral-hazard problem when the agent's reservation utility is large, but so is the agent's value to the principal. We show that the principal's cost of implementing effort has a very simple limiting form. For large enough outside option, the principal's cost is convex in the action, so the optimally-implemented action is unique, and optimal effort rises with the agent's ability, and falls with the agent's wealth and outside option. In a competitive market setting where heterogenous principals and agents match, positive sorting ensues and effort increases in match quality, despite conflicting forces. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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