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Optimal delegated search with adverse selection and moral hazard

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  • Ulbricht, Robert

    () (Toulouse School of Economics)

Abstract

The paper studies a model of delegated search. The distribution of search revenues is unknown to the principal and has to be elicited from the agent in order to design the optimal search policy. At the same time, the search process is unobservable, requiring search to be self-enforcing. The two information asymmetries are mutually enforcing each other; if one is relaxed, delegated search is efficient. With both asymmetries prevailing simultaneously, search is almost surely inefficient (it is stopped too early). Second-best remuneration is shown to optimally utilize a menu of simple bonus contracts. In contrast to standard adverse selection problems, indirect nonlinear tariffs are strictly dominated.

Suggested Citation

  • Ulbricht, Robert, 2016. "Optimal delegated search with adverse selection and moral hazard," Theoretical Economics, Econometric Society, vol. 11(1), January.
  • Handle: RePEc:the:publsh:1801
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    References listed on IDEAS

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    Cited by:

    1. Foucart, Renaud, 2017. "Meta-Search and Market Concentration," Rationality and Competition Discussion Paper Series 15, CRC TRR 190 Rationality and Competition.
    2. Xi Chen & Yu Chen & Xuhu Wan, 2018. "Delegated Project Search," Graz Economics Papers 2018-11, University of Graz, Department of Economics.
    3. Mauring, Eeva, 2016. "A two-agent model of sequential search and choice," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 122-137.

    More about this item

    Keywords

    Adverse selection; bonus contracts; delegated search; moral hazard; optimal stopping;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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