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Moral Hazard: Messages, Delegation and Efficiency

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Author Info
Andrea Attar
Eloisa Campioni
Gwenaël Piaser () (CREFI-LSF, University of Luxembourg)
Uday Rajan

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Abstract

A the present paper we show that messages may improve efficiency even in model of complete information. Messages are useful two main reasons. First, if the principal is not allowed to use stochastic mechanisms, mechanisms with messages can induced mixed strategies and hence indirectly a stochastic outcome. Second, even if stochastic mechanisms are allowed, messages can allow correlation between efforts and outcome. We then argue that indirect mechanisms can be interpreted as delegation and show how simple indirect mechanisms can improve efficiency in a simple model of moral hazard.

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Publisher Info
Paper provided by CREFI-LSF, University of Luxembourg in its series Working Papers of CREFI-LSF (Centre of Research in Finance - Luxembourg School of Finance) with number 08-01.

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Date of creation: 2008
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Handle: RePEc:crf:wpaper:08-01

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Web page: http://fdef.uni.lu/index.php/fdef/lux_school_of_finance/crefi_lsf
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Related research
Keywords: Efficiency; Moral Hazard; Messages; Correlated Equilibrium; Recommendation; Delegation.;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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This page was last updated on 2009-11-25.

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