The moral hazard problem with high stakes

• 成果类型: Article
• 署名作者: Chade, Hector; Swinkels, Jeroen
• 署名单位: Arizona State University; Arizona State University-Tempe; Northwestern University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2020.105032
• 发表日期: 2020
• 关键词: Moral hazard; first-order approach; principal-agent problem; comparative statics; matching

摘要

We study the moral-hazard problem when the agent's reservation utility is large, but so is the agent's value to the principal. We show that the principal's cost of implementing effort has a very simple limiting form. For large enough outside option, the principal's cost is convex in the action, so the optimally-implemented action is unique, and optimal effort rises with the agent's ability, and falls with the agent's wealth and outside option. In a competitive market setting where heterogenous principals and agents match, positive sorting ensues and effort increases in match quality, despite conflicting forces. (C) 2020 Elsevier Inc. All rights reserved.