Using Both Sociological and Economic Incentives to Reduce Moral Hazard
Economists tend to focus on monetary incentives. In the model developed here, both sociological and economic incentives are used to diminish the apparent moral hazard problem existing in commodity grading. Training that promotes graders' response to sociological incentives is shown to increase expected benefits. The model suggests this training be increased up to the point where the marginal benefit due to training equals its marginal cost. It may be more economical to influence the grader's behavior by creating cognitive dissonance through training and rules rather than by using economic incentives alone.
Volume (Year): 28 (2003)
Issue (Month): 02 (August)
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- Edward Simpson Prescott, 1999. "A primer on moral-hazard models," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 47-78.
- Hennessy, David A. & Wahl, Thomas I., 1997.
"Discount Schedules and Grower Incentives in Grain Marketing,"
Staff General Research Papers Archive
10672, Iowa State University, Department of Economics.
- David A. Hennessy & Thomas I. Wahl, 1997. "Discount Schedules and Grower Incentives in Grain Marketing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 888-901.
- Allen, Douglas W. & Lueck, Dean, 1999. "Searching For Ratchet Effects In Agricultural Contracts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(02), December.
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