On the moral hazard problem without the first-order approach
AbstractWe study the moral hazard problem without the first-order approach or other common structure. We present sufficient conditions under which the shadow value of simultaneously tightening the minimum payment and individual rationality constraints has a simple and intuitive expression. We then show how this expression can be used to perform comparative statics exercises in which we study (i) the effect of a change in the agentʼs wealth on the well-being of the principal; and (ii) the effects of the outside option and minimum payment on the effort level optimally implemented.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 148 (2013)
Issue (Month): 6 ()
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Web page: http://www.elsevier.com/locate/inca/622869
Principal–agent; Moral hazard; First-order approach;
Find related papers by JEL classification:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
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