Moral hazard with the (unlikely) possibility of catastrophes

Without sacrificing tractability, we analyze the effect of fat-tailed events such as catastrophes on the optimal compensation contract between a principal and an agent. The optimal contract depends on all the moments and not just the variance.

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Year of publication:	2014
Authors:	Bednarek, Ziemowit ; Patel, Pratish
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 124.2014, 3, p. 386-388
Publisher:	Elsevier
Subject:	Moral hazard \| Cumulants \| Rare disasters \| Optimal contract \| Skewness

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Type of publication:	Article
Classification:	D82 - Asymmetric and Private Information ; D86 - Economics of Contract: Theory ; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010930737