Moral hazard with bounded payments

A-Tier
Journal: Journal of Economic Theory
Year: 2008
Volume: 143
Issue: 1
Pages: 59-82

Score contribution per author:

1.341 = (α=2.01 / 3 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We study the moral hazard problem with general upper and lower constraints M on compensation. We characterize the optimal contract and show existence and uniqueness. When minimizing costs for given effort, a principal harmed by M will pay according to M on some range of outcomes; when M reflects limited liability or a minimum wage, the contract is option-like. When the principal also chooses effort, a principal harmed by M might nonetheless never pay according to M. This cannot occur if the cost of inducing effort in the standard principal-agent problem is convex, for which we provide sufficient conditions related to the informativeness of outcome about effort.

Technical Details

RePEc Handle
repec:eee:jetheo:v:143:y:2008:i:1:p:59-82
Journal Field
Theory
Author Count
3
Added to Database
2026-01-25