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Optimal contracts under competition when uncertainty from adverse selection and moral hazard are present

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  • Packham, Natalie

Abstract

In a continuous-time setting where a risk-averse agent controls the drift of an output process driven by a Brownian motion, optimal contracts are linear in the terminal output; this result is well-known in a setting with moral hazard and under stronger assumptions adverse selection. We show that this result continues to hold when in addition reser- vation utilities are type-dependent. This type of problem occurs in the study of optimal compensation problems involving competing principals.

Suggested Citation

  • Packham, Natalie, 2018. "Optimal contracts under competition when uncertainty from adverse selection and moral hazard are present," IRTG 1792 Discussion Papers 2018-033, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    • Handle: RePEc:zbw:irtgdp:2018033
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    References listed on IDEAS

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    Cited by:

    1. Li, Zhengda & Zheng, Chengxin & Liu, Aimin & Yang, Yang & Yuan, Xiaoling, 2022. "Environmental taxes, green subsidies, and cleaner production willingness: Evidence from China's publicly traded companies," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    2. Christina E. Bannier & Eberhard Feess & Natalie Packham & Markus Walzl, 2021. "Differentiation and Risk Aversion in Imperfectly Competitive Labor Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 177(1), pages 1-27.

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    More about this item

    Keywords

    Principal-agent modelling; contract design; stochastic process; stochastic control;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General

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