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Consider managers evaluating their employees’ performances. Should managers justify their subjective evaluations? Suppose a manager’s evaluation is private information. Justifying her evaluation is costly but limits the principal’s scope for distorting her evaluation of the employee. I...
Persistent link: https://www.econbiz.de/10014176641
McAfee and Reny (1992) have given a necessary and sufficient condition for full surplus extraction in naive type spaces with a continuum of payoff types. We generalize their characterization to arbitrary abstract type spaces and to the universal type space and show that in each setting, full...
Persistent link: https://www.econbiz.de/10012962521
We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully...
Persistent link: https://www.econbiz.de/10013137958
We consider a principal-agent model with moral hazard where the agent’s knowledge about the performance measure is ambiguous and he is averse towards ambiguity. We show that the principal may optimally provide no incentives or contract only on a subset of all informative performance measures....
Persistent link: https://www.econbiz.de/10014191015
The paper develops a technique for studying incentive problems with unidimensional hidden characteristics in a way that is independent of whether the type set is nite, the type distribution has a continuous density, or the type distribution has both mass points and an atomless part. By this...
Persistent link: https://www.econbiz.de/10014054142