IDEAS home Printed from https://ideas.repec.org/a/eee/gamebe/v95y2016icp10-24.html
   My bibliography  Save this article

Participation in moral hazard problems

Author

Listed:
  • Roger, Guillaume

Abstract

Two principals engage in Hotelling competition for an agent's services under incomplete information as to her outside option (location). This renders the agent's participation decision probabilistic from the perspective of each principal. Regardless of the market structure at equilibrium the optimal contract features a trade-off between participation probability and incentives. Rent and effort are inversely related and non-monotonic in the agent's transport cost and so in market structures; they increase (decrease) with competition. Uncertainty as to the agent's location may increase or decrease the rent compared to full information. This correspondingly harms or benefits principals.

Suggested Citation

  • Roger, Guillaume, 2016. "Participation in moral hazard problems," Games and Economic Behavior, Elsevier, vol. 95(C), pages 10-24.
    • Handle: RePEc:eee:gamebe:v:95:y:2016:i:c:p:10-24
    DOI: 10.1016/j.geb.2015.11.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0899825615001530
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.geb.2015.11.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alberto Bisin & Danilo Guaitoli, 2004. "Moral Hazard and Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 306-328, Summer.
    2. Mark Bagnoli & Ted Bergstrom, 2006. "Log-concave probability and its applications," Studies in Economic Theory, in: Charalambos D. Aliprantis & Rosa L. Matzkin & Daniel L. McFadden & James C. Moore & Nicholas C. Yann (ed.), Rationality and Equilibrium, pages 217-241, Springer.
    3. Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-1367, November.
    4. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    5. Attar Andrea & Campioni Eloisa & Piaser Gwenael, 2006. "Multiple Lending and Constrained Efficiency in the Credit Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-37, October.
    6. Page, Frank Jr., 1987. "The existence of optimal contracts in the principal-agent model," Journal of Mathematical Economics, Elsevier, vol. 16(2), pages 157-167, April.
    7. Attar, Andrea & Piaser, Gwenael & Porteiro, Nicolas, 2007. "A note on Common Agency models of moral hazard," Economics Letters, Elsevier, vol. 95(2), pages 278-284, May.
    8. Dam Kaniska & Perez-Castrillo David, 2006. "The Principal-Agent Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-34, August.
    9. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-1190, September.
    10. Moroni, Sofia & Swinkels, Jeroen, 2014. "Existence and non-existence in the moral hazard problem," Journal of Economic Theory, Elsevier, vol. 150(C), pages 668-682.
    11. Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-668, June.
    12. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    13. Macho-Stadler, Inés & Pérez-Castrillo, David & Porteiro, Nicolás, 2014. "Coexistence of long-term and short-term contracts," Games and Economic Behavior, Elsevier, vol. 86(C), pages 145-164.
    14. Sherwin Rosen, 1996. "The Equilibrium Approach to Labor Markets," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 189-204.
    15. Konstantinos Serfes, 2008. "Endogenous matching in a market with heterogeneous principals and agents," International Journal of Game Theory, Springer;Game Theory Society, vol. 36(3), pages 587-619, March.
    16. Jewitt, Ian & Kadan, Ohad & Swinkels, Jeroen M., 2008. "Moral hazard with bounded payments," Journal of Economic Theory, Elsevier, vol. 143(1), pages 59-82, November.
    17. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 277-311.
    18. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
    19. Jacques Crémer, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 275-295.
    20. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
    21. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, vol. 91(5), pages 1311-1328, December.
    22. John R. Conlon, 2009. "Two New Conditions Supporting the First-Order Approach to Multisignal Principal-Agent Problems," Econometrica, Econometric Society, vol. 77(1), pages 249-278, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Julien, Benoît & Roger, Guillaume, 2018. "Bidding for incentive contracts," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 95-105.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julien, Benoît & Roger, Guillaume, 2018. "Bidding for incentive contracts," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 95-105.
    2. Inés Macho-Stadler & David Pérez-Castrillo, 2018. "Moral hazard: Base models and two extensions," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 16, pages 453-485, Edward Elgar Publishing.
    3. Chang Koo Chi & Kyoung Jin Choi, 2022. "A Dual Approach To Agency Problems: Existence," Working papers 2022rwp-197, Yonsei University, Yonsei Economics Research Institute.
    4. Rongzhu Ke & Xinyi Xu, 2023. "The existence of an optimal deterministic contract in moral hazard problems," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(2), pages 375-416, August.
    5. Chi, Chang Koo & Choi, Kyoung Jin, 2023. "A dual approach to agency problems," Journal of Mathematical Economics, Elsevier, vol. 109(C).
    6. Ohad Kadan & Philip J. Reny & Jeroen M. Swinkels, 2017. "Existence of Optimal Mechanisms in Principal‐Agent Problems," Econometrica, Econometric Society, vol. 85, pages 769-823, May.
    7. Fagart, Marie-Cécile & Fluet, Claude, 2013. "The first-order approach when the cost of effort is money," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 7-16.
    8. Kadan, Ohad & Swinkels, Jeroen M., 2013. "On the moral hazard problem without the first-order approach," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2313-2343.
    9. Guillaume Roger, 2016. "A Revelation Mechanism for Soft Information under Moral Hazard," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(5), pages 752-763, October.
    10. Jung, Jin Yong, 2022. "Effects of changes in preferences in moral hazard problems," Journal of Economic Theory, Elsevier, vol. 205(C).
    11. Inés Macho-Stadler & David Pérez-Castrillo, 2021. "Agency theory meets matching theory," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 12(1), pages 1-33, March.
    12. Attar, Andrea & Chassagnon, Arnold, 2009. "On moral hazard and nonexclusive contracts," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 511-525, September.
    13. Hugo Hopenhayn & Arantxa Jarque, 2010. "Unobservable Persistent Productivity and Long Term Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 333-349, April.
    14. René Kirkegaard, 2020. "Contracting with private rewards," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 589-612, June.
    15. Balmaceda, Felipe & Balseiro, Santiago R. & Correa, José R. & Stier-Moses, Nicolás E., 2016. "Bounds on the welfare loss from moral hazard with limited liability," Games and Economic Behavior, Elsevier, vol. 95(C), pages 137-155.
    16. Jia Xie, 2015. "Information, Risk Sharing and Incentives in Agency Problems," Staff Working Papers 15-7, Bank of Canada.
    17. Barron, Daniel & Georgiadis, George & Swinkels, Jeroen M., 2020. "Optimal contracts with a risk-taking agent," Theoretical Economics, Econometric Society, vol. 15(2), May.
    18. Kirkegaard, René, 2017. "A unifying approach to incentive compatibility in moral hazard problems," Theoretical Economics, Econometric Society, vol. 12(1), January.
    19. Attar, Andrea & Majumdar, Dipjyoti & Piaser, Gwenaël & Porteiro, Nicolás, 2008. "Common agency games: Indifference and separable preferences," Mathematical Social Sciences, Elsevier, vol. 56(1), pages 75-95, July.
    20. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1232-1287, December.

    More about this item

    Keywords

    Moral hazard; Asymmetric information; Contract; Participation constraint; Principal–agent;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:95:y:2016:i:c:p:10-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.