Standards and Incentives under Moral Hazard with Limited Liability
We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agentâ€™s effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The principalâ€™s optimal contract gives the agent no rent and â€“ in contrast to the first-best allocation â€“ uses toomuch observable effort and too little unobservable effort. This distortion in the relative use of the two kinds of effort increases if the agentâ€™s liability becomes more limited.
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- Roland Strausz, .
"Buried in Paperwork: Excessive Reporting in Organizations,"
021, Departmental Working Papers.
- Strausz, Roland, 2006. "Buried in paperwork: Excessive reporting in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 460-470, August.
- Strausz, Roland, 2004. "Buried in Paperwork: Excessive Reporting in Organizations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 27, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
- Bhole, Bharat & Wagner, Jeffrey, 2008. "The joint use of regulation and strict liability with multidimensional care and uncertain conviction," International Review of Law and Economics, Elsevier, vol. 28(2), pages 123-132, June.
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