Dynamic Contracts with Moral Hazard and Adverse Selection
AbstractWe study a novel dynamic principal--agent setting with moral hazard and adverse selection (persistent as well as repeated). In the model, an agent whose skills are his private information faces a finite sequence of tasks, one after the other. Upon arrival of each task, the agent learns its level of difficulty and then chooses whether to accept or refuse each task in turn and how much effort to exert. Although his decision to accept or refuse a task is publicly known, the agent's effort level is his private information. We characterize optimal contracts and show that the per-period utility of the agent approaches his per-period utility when his skills are publicly known, as the discount factor and the time horizon increase. Copyright 2012, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal The Review of Economic Studies.
Volume (Year): 79 (2012)
Issue (Month): 1 ()
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- Alex Gershkov & Motty Perry, 2011. "Dynamic Contracts with Moral Hazard and Adverse Selection," Working Papers, International School of Economics at TSU, Tbilisi, Republic of Georgia 001-11, International School of Economics at TSU, Tbilisi, Republic of Georgia.
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