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- Title
Dynamic Contracts with Moral Hazard and Adverse Selection.
- Authors
Gershkov, Alex; Perry, Motty
- 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.
- Subjects
ADVERSE selection (Commerce); MORAL hazard; MULTIAGENT systems; TASK analysis (Education); TASK assessment; RISK management in business
- Publication
Review of Economic Studies, 2012, Vol 79, Issue 1, p268
- ISSN
0034-6527
- Publication type
Article
- DOI
10.1093/restud/rdr026