Moral Hazard and Verifiability
Author: Benjamin Edward Hermalin
Publisher:
Published: 1990
Total Pages: 31
ISBN-13:
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Author: Benjamin Edward Hermalin
Publisher:
Published: 1990
Total Pages: 31
ISBN-13:
DOWNLOAD EBOOKAuthor: Drew Fudenberg
Publisher:
Published: 1988
Total Pages: 59
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DOWNLOAD EBOOKAuthor: Francesco Squintani
Publisher:
Published: 1999
Total Pages: 54
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DOWNLOAD EBOOKAuthor: Abraham Wickelgren
Publisher:
Published: 2003
Total Pages: 20
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DOWNLOAD EBOOKAuthor: Abraham L. Wickelgren
Publisher:
Published: 2003
Total Pages: 20
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DOWNLOAD EBOOKAuthor: Shingo Ishiguro
Publisher:
Published: 1999
Total Pages: 0
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DOWNLOAD EBOOKAuthor: Bruno Strulovici
Publisher:
Published: 2011
Total Pages:
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DOWNLOAD EBOOKHow does renegotiation affect contracts between a principal and an agent subject to persistent private information and moral hazard? This paper introduces a concept of renegotiationproofness, which adapts to stochastic games the concepts of weak renegotiation-proofness and internal consistency by exploiting natural comparisons across states. When the agent has exponential utility and cost of effort, each separating renegotiation-proof contract is characterized by a single "sensitivity" parameter, which determines how the agent's promised utility varies with reported cash flows. The optimal contract among those always causes immiserization. Reducing the agent's cost of effort can harm the principal by increasing the tension between moral hazard and reporting problems. Truthfulness of the constructed contracts is obtained by allowing jumps in cash flow reports and turning the agent's reporting problem into an impulse control problem. This approach shows that self-correcting reports are optimal of the equilibrium path. The paper also discusses the case of partially pooling contracts and of permanent outside options for the agent, illustrating the interaction between cash-flow persistence, renegotiation, moral hazard, and information revelation. -- Repeated Agency ; Asymmetric Information ; Persistent Information ; Contract Theory ; Principal Agent ; Limited Commitment ; Renegotiation ; Recursive Contracts
Author: Benjamin E. HERMALIN
Publisher:
Published: 1990
Total Pages:
ISBN-13:
DOWNLOAD EBOOKAuthor: Shingo Ishiguro
Publisher:
Published: 1999
Total Pages: 33
ISBN-13:
DOWNLOAD EBOOKAuthor: Hiroshi Osano
Publisher:
Published: 2003
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKWe examine renegotiation in a double moral hazard model with an ex ante budget balancing constraint when both the principal and the agent are allowed to make a renegotiation offer even though the principal proposes an initial contract. Under a belief restriction, any perfect-Bayesian equilibrium leads to an allocation that is superior to the second-best allocation of the standard double moral hazard model without renegotiation. The result of this paper gives some reasons for the existence of intermediary organizations such as holding companies, law houses, consulting firms, investment banks or venture capital. The result can also provide the rationalization for a fund set up by a group of firms of the industry in which their product is legally required to be recyclable.