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Dynamic contracts with moral hazard and adverse selection
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Gershkov, Alex and Perry, Motty (2012) Dynamic contracts with moral hazard and adverse selection. The Review of Economic Studies, Vol.79 (No.1). pp. 268-306. doi:10.1093/restud/rdr026 ISSN 0034-6527.
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WRAP_Perry_150312-12-01-2011-dynamic-contract-final1.pdf - Accepted Version Download (394Kb) |
Official URL: http://dx.doi.org/10.1093/restud/rdr026
Abstract
We study a novel dynamic principal–agent setting with moral hazard and adverse selection (persistent as well as repeated). In the model, an agent whose skills are his private information faces a finite sequence of tasks, one after the other. Upon arrival of each task, the agent learns its level of difficulty and then chooses whether to accept or refuse each task in turn and how much effort to exert. Although his decision to accept or refuse a task is publicly known, the agent's effort level is his private information. We characterize optimal contracts and show that the per-period utility of the agent approaches his per-period utility when his skills are publicly known, as the discount factor and the time horizon increase.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Risk (Insurance) -- Econometric models, Moral hazard, Adverse selection (Insurance) | ||||
Journal or Publication Title: | The Review of Economic Studies | ||||
Publisher: | Oxford University Press | ||||
ISSN: | 0034-6527 | ||||
Official Date: | January 2012 | ||||
Dates: |
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Volume: | Vol.79 | ||||
Number: | No.1 | ||||
Page Range: | pp. 268-306 | ||||
DOI: | 10.1093/restud/rdr026 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access | ||||
Date of first compliant deposit: | 19 December 2015 | ||||
Date of first compliant Open Access: | 19 December 2015 | ||||
Funder: | Israel Science Foundation (ISF), Makhon le-meḥḳar kalkali be-Yiśraʼel ʻal-shem Moris Falḳ [Falk Institute for Economic Research in Israel] |
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