We study optimal securitization in the presence of an initial moral hazard. A financial intermediary creates and then sells to outside investors defaultable assets, whose default risk is determined by the unobservable costly effort exerted by the intermediary. We calculate the optimal contract...

This paper focuses on the size of the borrower group in group lending. We show that, when social ties in a community enhance borrowers’ incentives to exert effort, a profit-maximizing financier chooses a group of limited size. Borrowers that would be fundable under moral hazard but have...

We study economies of asymmetric information with observable types. Trade takes place in lotteries. Individuals face a standard budget constraint, while the incentive compatibility constraints are imposed on the production set of the intermediaries. This formalization encompasses Moral Hazard,...

Even risk-neutral individuals can insure themselves against crimes by combining direct expenditure on security with costly diversification. In such cases — and even when one of these options is infeasible — greater policing often actually encourages private precautions.

We study a contracting problem where a principal delegates the decision to implement a “project” to an agent who obtains private information about the value of the project before making the implementation decision. Moral hazard arises because the agent gets private random non-contractible...

We show that a team may favor self-sabotage to influence the principal’s contract decision. Sabotage increases a team member’s bonus and total team effort. If these benefits outweigh the reduction in the success probability, sabotaging the team is rational.

This paper analyzes the impact of wage comparisons among inequity-averse agents on optimal incentive intensities in a linear–exponential–normal moral hazard model with multi-tasking. We consider individual and team production tasks that differ in that only individual production causes wage...