Moral Hazard and Efficiency in a Frictional Market

B-Tier
Journal: American Economic Journal: Microeconomics
Year: 2023
Volume: 15
Issue: 1
Pages: 693-730

Score contribution per author:

1.005 = (α=2.01 / 2 authors) × 1.0x B-tier

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

Abstract

Principals seek to trade with homogeneous agents by posting incentive contracts, which direct their search. Search and moral hazard interact in equilibrium. If using transfers to compensate agents failing to contract, the equilibrium allocation is always constrained-welfare-optimal in contrast to the one-to-one principal-agent problem. Search frictions thus correct that inefficiency because search requires internalizing the utility of agents. Incentives are weaker than in bilateral contracting, and agents enjoy more efficient risk sharing. With a constraint on transfers the allocation may become inefficient; principal competition results in overinsurance of the agents, too little effort in equilibrium, and excessive entry by principals.

Technical Details

RePEc Handle
repec:aea:aejmic:v:15:y:2023:i:1:p:693-730
Journal Field
General
Author Count
2
Added to Database
2026-01-25