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Moral Hazard: Messages, Delegation and Efficiency

Author

Listed:
  • Andrea Attar
  • Eloisa Campioni
  • Gwenaël Piaser

    (Luxembourg School of Finance, University of Luxembourg)

  • Uday Rajan

Abstract

A the present paper we show that messages may improve efficiency even in model of complete information. Messages are useful two main reasons. First, if the principal is not allowed to use stochastic mechanisms, mechanisms with messages can induced mixed strategies and hence indirectly a stochastic outcome. Second, even if stochastic mechanisms are allowed, messages can allow correlation between efforts and outcome. We then argue that indirect mechanisms can be interpreted as delegation and show how simple indirect mechanisms can improve efficiency in a simple model of moral hazard.

Suggested Citation

  • Andrea Attar & Eloisa Campioni & Gwenaël Piaser & Uday Rajan, 2008. "Moral Hazard: Messages, Delegation and Efficiency," LSF Research Working Paper Series 08-01, Luxembourg School of Finance, University of Luxembourg.
    • Handle: RePEc:crf:wpaper:08-01
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    File URL: http://www.lsf.lu/eng/content/download/496/2692/file/08-01.pdf
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    More about this item

    Keywords

    Efficiency; Moral Hazard; Messages; Correlated Equilibrium; Recommendation; Delegation.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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