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Moral Hazard: Messages, Delegation and Efficiency

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  • Andrea Attar
  • Eloisa Campioni
  • Gwenaël Piaser

    ()
    (Luxembourg School of Finance, University of Luxembourg)

  • Uday Rajan

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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Bibliographic Info

Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series 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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Keywords: Efficiency; Moral Hazard; Messages; Correlated Equilibrium; Recommendation; Delegation.;

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