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Repeated Moral Hazard with Effort Persistence

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  • Arantxa Jarque

Abstract

I study a problem of repeated moral hazard where the effect of effort is persistent over time: each period's outcome distribution is a function of a geometrically distributed lag of past efforts. I show that when the utility of the agent is linear in effort, a simple rearrangement of terms in his lifetime utility translates this problem into a related standard repeated moral hazard. The solutions for consumption in the two problems are observationally equivalent, implying that the main properties of the optimal contract remain unchanged with persistence. For illustration, I present the computed solution of an example.
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  • Arantxa Jarque, 2005. "Repeated Moral Hazard with Effort Persistence," 2005 Meeting Papers 428, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:428
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hugo Hopenhayn & Arantxa Jarque, 2006. "Moral Hazard and Persistence," 2006 Meeting Papers 670, Society for Economic Dynamics.
    2. Hugo Hopenhayn & Arantxa Jarque, 2010. "Unobservable Persistent Productivity and Long Term Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 333-349, April.
    3. Arantxa Jarque, 2010. "Hidden effort, learning by doing, and wage dynamics," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 339-372.
    4. Jovanovic, Boyan & Prat, Julien, 2014. "Dynamic contracts when agent's quality is unknown," Theoretical Economics, Econometric Society.
    5. Jacek Rothert, 2015. "Monitoring, moral hazard, and turnover," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 355-374.
    6. Antonello D'Agostino & Domenico Giannone & Paolo Surico, 2005. "(Un)Predictability and Macroeconomic Stability," Macroeconomics 0510024, EconWPA.
    7. Koeppl, Thorsten & Monnet, Cyril & Temzelides, Ted, 2008. "A dynamic model of settlement," Journal of Economic Theory, Elsevier, pages 233-246.
    8. Koehne, Sebastian & Kuhn, Moritz, 2013. "Optimal capital taxation for time-nonseparable preferences," MPRA Paper 45203, University Library of Munich, Germany.
    9. Braz Camargo & Elena Pastorino, 2016. "Learning-by-Employing: The Value of Commitment under Uncertainty," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 581-620.
    10. Sam Schulhofer-Wohl & Miguel Garrido, 2013. "Do Newspapers Matter? Short-Run and Long-Run Evidence From the Closure of The Cincinnati Post," Journal of Media Economics, Taylor & Francis Journals, pages 60-81.
    11. Roman Inderst & Marcus Opp & Florian Hoffmann, 2016. "Deferred compensation and risk-taking incentives," 2016 Meeting Papers 674, Society for Economic Dynamics.
    12. Simon Board & Moritz Meyer‐ter‐Vehn, 2013. "Reputation for Quality," Econometrica, Econometric Society, pages 2381-2462.
    13. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2003. "Equilibrium Policy Experiments and the Evaluation of Social Programs," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20032, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    14. Jacek Rothert, 2009. "Monitoring, Moral Hazard and Turnover," Department of Economics Working Papers 130124, The University of Texas at Austin, Department of Economics, revised Sep 2012.
    15. Moritz Meyer-ter-Vehn & Simon Board, 2009. "Reputation for Quality," 2009 Meeting Papers 160, Society for Economic Dynamics.
    16. Philip A. Curry & John E. Roemer, 2012. "Evolutionary Stability of Kantian Optimization," Hacienda Pública Española, IEF, vol. 200(1), pages 131-146, March.
    17. Hugo A. Hopenhayn & Arantxa Jarque, 2007. "Moral hazard and persistence," Working Paper 07-07, Federal Reserve Bank of Richmond.

    More about this item

    Keywords

    mechanism design; repeated agency; persistence;

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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