Repeated Moral Hazard And Contracts With Memory : The Case of Risk Neutrality
Repeated Moral Hazard And Contracts With Memory : The Case of Risk Neutrality
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2012
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Schmitz, Patrick W.
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International Economic Review ; 53 (2012), 2. - pp. 433-452. - ISSN 0020-6598. - eISSN 1468-2354
Abstract
We consider a repeated moral hazard problem, where both the principal and the wealth-constrained agent are risk-neutral. In each of two periods, the agent can exert unobservable effort, leading to success or failure. Incentives provided in the second period act as carrot and stick for the first period, so that the effort level induced in the second period is higher after a first-period success than after a failure. If renegotiation cannot be prevented, the principal may prefer a project with lower returns; i.e., a project may be "too good" to be financed or, similarly, an agent can be "overqualified".
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330 Economics
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Dynamic moral hazard,hidden actions,limited liability
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GOLDLÜCKE, Susanne, Patrick W. SCHMITZ, 2012. Repeated Moral Hazard And Contracts With Memory : The Case of Risk Neutrality. In: International Economic Review. 53(2), pp. 433-452. ISSN 0020-6598. eISSN 1468-2354. Available under: doi: 10.1111/j.1468-2354.2012.00687.xBibTex
@article{Goldlucke2012Repea-28565, year={2012}, doi={10.1111/j.1468-2354.2012.00687.x}, title={Repeated Moral Hazard And Contracts With Memory : The Case of Risk Neutrality}, number={2}, volume={53}, issn={0020-6598}, journal={International Economic Review}, pages={433--452}, author={Goldlücke, Susanne and Schmitz, Patrick W.} }
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