On Repeated Moral Hazard with a Present Biased Agent
This paper introduces time inconsistent preferences into a moral hazard setting where the agent is risk-averse. We derive a necessary optimality condition on the consumption allocation that is different from the so-called Inverse Euler Equation of Rogerson (1985). Specifically, inverse marginal utility is not a martingale, rather it follows a partial adjustment process. If the bias for the present is sufficiently large the optimal allocation will leave the agent with the desire to borrow. We extend the analysis to the case in which the principal does not know if the agent is time consistent or not. Finally, we show that in a setting with a risk-neutral agent and limited liability everything is as if the principal faces a time consistent agent.
|Date of creation:||25 Sep 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
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.:
- Grochulski, Borys & Kocherlakota, Narayana, 2010.
"Nonseparable preferences and optimal social security systems,"
Journal of Economic Theory,
Elsevier, vol. 145(6), pages 2055-2077, November.
- Narayana Kocherlakota & Borys Grochulski, 2007. "Nonseparable Preferences and Optimal Social Security Systems," Levine's Bibliography 843644000000000156, UCLA Department of Economics.
- Narayana Kocherlakota & Borys Grochulski, 2007. "Nonseparable Preferences and Optimal Social Security systems," Working Papers 2007-1, University of Minnesota, Department of Economics, revised 14 Aug 2007.
- Borys Grochulski & Narayana Kocherlakota, 2007. "Nonseparable Preferences and Optimal Social Security Systems," NBER Working Papers 13362, National Bureau of Economic Research, Inc.
- Narayana Kocherlakota & Borys Grochulski, 2008. "Nonseparable Preferences and Optimal Social Security Systems," 2008 Meeting Papers 16, Society for Economic Dynamics.
- repec:oup:qjecon:v:112:y:1997:i:2:p:443-77 is not listed on IDEAS
- Matthew Rabin & Ted O'Donoghue, 1999.
"Doing It Now or Later,"
American Economic Review,
American Economic Association, vol. 89(1), pages 103-124, March.
- O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
- Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
- James M. Malcomson & Frans Spinnewyn, 1988. "The Multiperiod Principal-Agent Problem," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 391-407.
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Chiappori, P.A. & Macho, I. & Rey, p. & Salanie, B., 1994.
"Repeated Moral Hazard: The Role of Memory, Commitment, and the Acces to Credit Markets,"
06, Laval - Laboratoire Econometrie.
- Chiappori, Pierre-Andre & Macho, Ines & Rey, Patrick & Salanie, Bernard, 1994. "Repeated moral hazard: The role of memory, commitment, and the access to credit markets," European Economic Review, Elsevier, vol. 38(8), pages 1527-1553, October.
- Chiappori, P.A. & Macho, I. & Rey, P. & Salanié, B., 1989. "Repeated Moral Hazard: The Role of Memory, Commitment, and the Access to Credit Markets," DELTA Working Papers 89-18, DELTA (Ecole normale supérieure).
- Richard A. Lambert, 1983. "Long-Term Contracts and Moral Hazard," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 441-452, Autumn.
- Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990.
"Short-term contracts and long-term agency relationships,"
Journal of Economic Theory,
Elsevier, vol. 51(1), pages 1-31, June.
- Drew Fudenberg & Bengt Holmstrom & Paul Milgrom, 1987. "Short-Term Contracts and Long-Term Agency Relationships," Working papers 468, Massachusetts Institute of Technology (MIT), Department of Economics.
- Rey, Patrick & Salanie, Bernard, 1990. "Long-term, Short-term and Renegotiation: On the Value of Commitment in Contracting," Econometrica, Econometric Society, vol. 58(3), pages 597-619, May.
- Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
- Ohlendorf, Susanne & Schmitz, Patrick W., 2011.
"Repeated moral hazard and contracts with memory: The case of risk-neutrality,"
28823, University Library of Munich, Germany.
- Susanne Ohlendorf & Patrick W. Schmitz, 2012. "Repeated Moral Hazard And Contracts With Memory: The Case Of Risk‐Neutrality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 433-452, 05.
- Murat Yilmaz, 2010. "Contracting with a Time-Inconsistent Agent," Working Papers 2010/15, Bogazici University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:341. 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.