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- Title
Multitasking, Multidimensional Screening, and Moral Hazard with Risk Neutral Agents.
- Authors
BASOV, SUREN; DANILKINA, SVETLANA
- Abstract
In this paper we consider a model where a risk-neutral principal devises a contract for a risk neutral agent who can exert effort along different dimensions and possesses private information about her cost of effort. We show that when the number of effort dimensions exceeds the number of performance measures observed by the principal hidden action leads to an additional welfare loss compared with pure adverse selection even if both parties are risk neutral and the production technology is independent of the agent's type. The result implies that if effort has many dimensions it is beneficial to the principal to base employees’ compensation on many performance measures rather than on a single ‘bottom-line’ measure (e.g. their contribution to the company's profits).
- Subjects
MORAL hazard; RISK management in business; HUMAN multitasking; WAGES; EMPLOYEES
- Publication
Economic Record, 2010, Vol 86, p80
- ISSN
0013-0249
- Publication type
Article
- DOI
10.1111/j.1475-4932.2010.00662.x