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Incentives, Moral Hazard and Adverse Selection

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  • Silvia Platoni

    (DISCE, Università Cattolica)

Abstract

This paper proposes a model which analyses not only the provision of incentives (see, e.g., Gershkov et. al 2006 and Huck et al. 2001) and the moral hazard problem (see, e.g., Holmstrom 1982), but also the adverse selection problem (i.e. the workers are heterogeneous). Moreover, unlike the previous works, the paper introduces also the time dimension: we consider a firm with an infinite time horizon and individuals whose working life is split into two phases, the young phase and old phase. By comparing the results of the classical incentives scheme with those of a rewarding incentives scheme, we can conclude that this last scheme allows a higher production level.

Suggested Citation

  • Silvia Platoni, 2009. "Incentives, Moral Hazard and Adverse Selection," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1057, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie2:dises1057
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    More about this item

    Keywords

    asymmetric information; incentives;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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