Renegotiation-proof Contracts with Moral Hazard and Persistent Private Information
Renegotiation-proof Contracts with Moral Hazard and Persistent Private Information

Author: Bruno Strulovici

Publisher:

Published: 2011

Total Pages:

ISBN-13:

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How 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

Moral Hazard
Moral Hazard

Author: Heshan Sameera

Publisher:

Published: 2019

Total Pages:

ISBN-13:

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In the literal sense, moral hazard relates to the adverse effects, from the perspective of an insurance company, which an insurer could have on the behavior of an insured. This situation arises from a common economic scenario in which an agent and a principle are in a situation of their choice in which the agent's actions have an externality on the principle. It is notable that the principle will always want to influence the actions of the agent. Such an influence will always occur in the forms of a contract, which allows the principle to compensate their agent contingent on their direct activities or the effects of such actions. For example, one of the extreme examples is that of an individual who is insured under a fire cover who may wish to set their property ablaze for them to obtain the insurance money. In this case, the insurer needs to have an ability to cover such actions in the insurance contract, which is the idea of the moral hazard. The purpose of this work is to consider the hidden information problem, which turns out to be a game between two actors in the economic field, one whom holds information that is mutually important that the other lacks. The article describes that the concept of moral hazard is useful for companies that enter in trading negotiations with each other since it helps them to design contracts that would take advantage of the risk that they hold in trading with such partners.

Eliminating Waste: A Principal Agent Model with respect to Human Capital
Eliminating Waste: A Principal Agent Model with respect to Human Capital

Author: Stefan Georg Hunger

Publisher: diplom.de

Published: 2005-10-07

Total Pages: 97

ISBN-13: 3832490396

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Inhaltsangabe:Abstract: Utopia, the ideally perfect state in social and moral aspects, the imaginary island represented by Thomas More in 1516 enjoying the greatest degree of perfection in politics and laws, the perfect society, have we already reached it? Several artists and authors who dealt with the subject of geographical design and functional planning of new municipal constructions have elaborated drafts and ideas about future types of society and urbanity as a Utopia of a technological and highly regulated society. This genre of literature culminated in masterpieces such as Fritz Lang s Metropolis (1927), Aldous Huxley s Brave New World (1931) and George Orwell s Nineteen Eigthy-Four (1949). In their visions the modern city provides a lifestyle full of comfort and convenience: push button factories, flyways that put an end to traffic jams, electronically operated high-speed trains and many other inventions that are a vital part of a goal-oriented urban management to ensure maximal efficiency. However, Fritz Lang as well as Huxley and Orwell show that all the convenience and comfort is a thigh costs. The urban habitat is depressing and in its design not aimed at recreation and personal development but at control of each individual. This culminates in the erosion of any kind of individualism. The life on the assembly line de-individualizes the inhabitants, equalizes and transforms them into machines that mechanically perform their work. Moreover, the people are no longer distinguishable, they wear the same clothes, and finally they are as the machines as which they work for... In this light, as a consequence of industrialization and the quest for maximal efficiency, the trepidation emerges whether we are running into a state of deprivation, oppression, and terror. Are we developing towards a Dystopia, a state in which the condition of life is extremely depressing? This is the starting point for a theory of optimal employment of resources, of banishing waste, a quest in pursuit of excellence, without disregarding the focal point, the individual. In fact, among successful managers there are no two identical strategies, management models or packages of techniques. To desperately cling to systems and self proclaimed panacea definitely is the wrong way as it is to call for an ideal rather than an effective manager. As Fredmund Malik (2000) argues that the key to the achievements of effective managers is not their personality but their way [...]

The Handbook of Organizational Economics
The Handbook of Organizational Economics

Author: Robert S. Gibbons

Publisher: Princeton University Press

Published: 2013

Total Pages: 1248

ISBN-13: 0691132798

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(E-book available via MyiLibrary) In even the most market-oriented economies, most economic transactions occur not in markets but inside managed organizations, particularly business firms. Organizational economics seeks to understand the nature and workings of such organizations and their impact on economic performance. The Handbook of Organizational Economics surveys the major theories, evidence, and methods used in the field. It displays the breadth of topics in organizational economics, including the roles of individuals and groups in organizations, organizational structures and processes, the boundaries of the firm, contracts between and within firms, and more.

Incentives, Organization, and Public Economics
Incentives, Organization, and Public Economics

Author: Peter Hammond

Publisher: OUP Oxford

Published: 2000-12-21

Total Pages: 370

ISBN-13: 0191590134

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This collection celebrates the career of Sir James Mirrlees, who received the 1996 Nobel Prize in Economics for his work on income taxation and its extension to information and incentive problems. His contributions have proved fundamental to the development of a wide range of areas in economics. The 17 papers contained in this volume focus on themes that are representative of Mirrlees' work, including the economics of information, welfare, taxation, project appraisal, and industrial organization. All the contributors have spent time working closely with Mirrlees - either as his co-author or his student - and all are recognized authorities in their fields. The significant new contributions that this collection offers will have wide-ranging appeal, and should prove particularly interesting to scholars working in the areas of microeconomics, microeconomic theory, mathematical economics, and welfare economics.

The Handbook of the Economics of Corporate Governance
The Handbook of the Economics of Corporate Governance

Author: Benjamin Hermalin

Publisher: Elsevier

Published: 2017-09-18

Total Pages: 762

ISBN-13: 0444635408

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The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. Concentrates on underlying principles that change little, even as the empirical literature moves on Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field’s substantive findings, all of which help point the way forward