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Mechanism Design with Moral Hazard

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  • Suehuyn Kwon

Abstract

This paper characterizes when the one-stage deviation IC constraints in the usual sense of dynamic mechanism design are sufficient. One can easily construct examples of when they are not sufficient. If the current state or the belief is not a sufficient summary statics of the agent’s private history, the one-stage deviation IC constraints are not sufficient in general. The paper provides sufficient conditions for when they are sufficient in the usual sense; it also provides a necessary and sufficient condition for all IC constraints if the one-stage deviation IC constraints in the usual sense are not sufficient.

Suggested Citation

  • Suehuyn Kwon, 2017. "Mechanism Design with Moral Hazard," CESifo Working Paper Series 6621, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6621
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp6621.pdf
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    References listed on IDEAS

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    1. Richard Blundell & Monica Costa Dias & Costas Meghir & Jonathan Shaw, 2016. "Female Labor Supply, Human Capital, and Welfare Reform," Econometrica, Econometric Society, vol. 84, pages 1705-1753, September.
    2. Marek Kapička & Julian Neira, 2019. "Optimal Taxation with Risky Human Capital," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(4), pages 271-309, October.
    3. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-1098, July.
    4. Simon Board & Moritz Meyer‐ter‐Vehn, 2013. "Reputation for Quality," Econometrica, Econometric Society, vol. 81(6), pages 2381-2462, November.
    5. Daniel F. Garrett & Alessandro Pavan, 2012. "Managerial Turnover in a Changing World," Journal of Political Economy, University of Chicago Press, vol. 120(5), pages 879-925.
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    More about this item

    Keywords

    dynamic mechanism design; adverse selection; moral hazard; revelation principle; one-shot deviation principle; endogenous state;

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