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Informed-principal problem with moral hazard, risk neutrality, and no limited liability. (English) Zbl 1330.91119

Summary: We consider a principal-agent moral-hazard problem with risk-neutral parties and no limited liability in which the principal has private information. The principal’s private information creates signaling considerations that may distort the implemented outcome. These distortions can explain, e.g., efficiency wages [P. Beaudry, Int. Econ. Rev. 35, No. 4, 821–832 (1994; Zbl 0812.90023)] and muted incentives [R. Inderst, “Incentive schemes as a signaling device”, J. Econ. Behav. Organ. 44, No. 4, 455–465 (2001; doi:10.1016/S0167-2681(00)00142-6)]. We show that in a large class of environments these distortions vanish if the principal is allowed to offer sufficiently rich contracts.

MSC:

91B40 Labor market, contracts (MSC2010)
91B44 Economics of information

Citations:

Zbl 0812.90023
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References:

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