A Simple Impossibility Result in Behavioral Contract Theory
The paper analyses, within a moral hazard scenario, a contract between an agent with anticipatory emotions and a principal who responds strategically to those emotions. The agent receives a private signal on the profitability of the task he was hired for. If the signal is informative about the return from effort, the agent would benefit from knowing accurate news. However, if the agent derives utility from the anticipation of his final payoff, the suppression of a bad signal may induce a positive interim emotional effect. We show that it may be impossible to achieve the first-best, even though the risk-neutral parties are symmetrically informed at the contracting stage and complete contracts can be written.
|Date of creation:||18 Oct 2010|
|Publication status:||published in Economic Letters 113 (2011) 307-309|
|Contact details of provider:|| Postal: I-80126 Napoli|
Phone: +39 081 - 675372
Fax: +39 081 - 675372
Web page: http://www.csef.it/
More information through EDIRC
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.:
- Myerson, Roger B. & Satterthwaite, Mark A., 1983.
"Efficient mechanisms for bilateral trading,"
Journal of Economic Theory,
Elsevier, vol. 29(2), pages 265-281, April.
- Andrew Caplin & John Leahy, 2004.
"The supply of information by a concerned expert,"
Royal Economic Society, vol. 114(497), pages 487-505, 07.
- Kuznitz, Arik & Kandel, Shmuel & Fos, Vyacheslav, 2008.
"A portfolio choice model with utility from anticipation of future consumption and stock market mean reversion,"
European Economic Review,
Elsevier, vol. 52(8), pages 1338-1352, November.
- Kandel, Shmuel & Kuznitz, Arik, 2004. "A Portfolio Choice Model with Utility from Anticipation of Future Consumption and Stock Markets' Mean Reversion," CEPR Discussion Papers 4701, C.E.P.R. Discussion Papers.
- Roland Bénabou & Jean Tirole, 2011. "Identity, Morals, and Taboos: Beliefs as Assets," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 805-855.
- Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory and Anticipatory Feelings," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 55-79.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
- Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-684, September.
- Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-319, June.
- Caplin, Andrew & Eliaz, Kfir, 2003. " AIDS Policy and Psychology: A Mechanism-Design Approach," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 631-646, Winter.
- Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:262. 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: (Lia Ambrosio)
If references are entirely missing, you can add them using this form.