IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v114y2024i1p1-37.html
   My bibliography  Save this article

Disentangling Moral Hazard and Adverse Selection

Author

Listed:
  • Henrique Castro-Pires
  • Hector Chade
  • Jeroen Swinkels

Abstract

While many real-world principal-agent problems have both moral hazard and adverse selection, existing tools largely analyze only one at a time. Do the insights from the separate analyses survive when the frictions are combined? We develop a simple method—decoupling—to study both problems at once. When decoupling works, everything we know from the separate analyses carries over, but interesting interactions also arise. We provide simple tests for whether decoupling is valid. We develop and numerically implement an algorithm to calculate the decoupled solution and check its validity. We also provide primitives for decoupling to work and analyze several extensions.

Suggested Citation

  • Henrique Castro-Pires & Hector Chade & Jeroen Swinkels, 2024. "Disentangling Moral Hazard and Adverse Selection," American Economic Review, American Economic Association, vol. 114(1), pages 1-37, January.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:1:p:1-37
    DOI: 10.1257/aer.20220100
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/aer.20220100
    Download Restriction: no
    File URL: https://doi.org/10.3886/E193349V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aer.20220100.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aer.20220100.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/aer.20220100?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:114:y:2024:i:1:p:1-37. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.