Multitasking, Multidimensional Screening, and Moral Hazard with Risk Neutral Agents
In this paper we consider a model where a risk-neutral principal devises a contract for a risk neutral agent who can exert effort along different dimensions and possesses private information about her cost of effort. We show that when the number of effort dimensions exceeds the number of performance measures observed by the principal hidden action leads to an additional welfare loss compared with pure adverse selection even if both parties are risk neutral and the production technology is independent of the agent's type. The result implies that if effort has many dimensions it is beneficial to the principal to base employees' compensation on many performance measures rather than on a single 'bottom-line' measure (e.g. their contribution to the company's profits). Copyright © 2010 The Economic Society of Australia.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 86 (2010)
Issue (Month): s1 (09)
|Contact details of provider:|| Postal: Central Council Administration, L.P.O. Box 2161, Hawthorn VIC 3122|
Phone: 61 3 9497 4140
Fax: 61 3 9497 4140
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0013-0249
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0013-0249|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bengt Holmstrom, 1979.
"Moral Hazard and Observability,"
Bell Journal of Economics,
The RAND Corporation, vol. 10(1), pages 74-91, Spring.
- Caillaud, Bernard & Guesnerie, Roger & Rey, Patrick, 1989.
"Noisy observation in adverse selection models,"
CEPREMAP Working Papers (Couverture Orange)
- Marianne Bertrand & Sendhil Mullainathan, 2001. "Are CEOs Rewarded for Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 901-932.
- Basov Suren, 2003.
"Incentives for Boundedly Rational Agents,"
The B.E. Journal of Theoretical Economics,
De Gruyter, vol. 3(1), pages 1-16, June.
- Guesnerie Roger & Picard Pierre & Rey P, 1986.
"Adverse selection and moral hazard with risk-neutral agent,"
CEPREMAP Working Papers (Couverture Orange)
- Guesnerie, Roger & Picard, Pierre & Rey, Patrick, 1989. "Adverse selection and moral hazard with risk neutral agents," European Economic Review, Elsevier, vol. 33(4), pages 807-823, April.
- Carlier, Guillaume, 2001. "A general existence result for the principal-agent problem with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 129-150, February.
- Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
- Suren Basov & Peter Bardsley, 2005. "A General Model of Coexisting Hidden Action and Hidden Information," Department of Economics - Working Papers Series 958, The University of Melbourne.
When requesting a correction, please mention this item's handle: RePEc:bla:ecorec:v:86:y:2010:i:s1:p:80-86. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.