Repeated Moral Hazard And Contracts With Memory : The Case of Risk Neutrality

Goldlücke, Susanne; Schmitz, Patrick W.

Repeated Moral Hazard And Contracts With Memory : The Case of Risk Neutrality

Files

Ohlendorf_285650.pdf(484.89 KB)

Date

2012

Authors

Goldlücke, Susanne

Schmitz, Patrick W.

Publication type

Journal article

Published in

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".

Subject (DDC)

330 Economics

Keywords

Dynamic moral hazard,hidden actions,limited liability

Cite This

ISO 690

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.x

BibTex

@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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