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Standards and Incentives under Moral Hazard with Limited Liability

Reinshagen, Felix - 2012

We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent’s effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The...

Persistent link: https://www.econbiz.de/10010427619

Limited Liability and the Risk-Incentive Relationship

Budde, Jörg; Kräkel, Matthias - 2008

Several empirical findings have challenged the traditional view on the trade-off between risk and incentives. By … combining risk aversion and limited liability in a standard principal-agent model the empiri- cal puzzle on the positive … relationship between risk and incentives can be explained. Increasing risk leads to a less informative performance signal. Under …

Persistent link: https://www.econbiz.de/10010264917

Wage floors and optimal job design

Kragl, Jenny; Schöttner, Anja - 2011

We analyze the effects of lower bounds on wages, e.g., minimum wages or liability limits, on job design within firms. In our model, two tasks contribute to non-veriable firm value and affect an imperfect performance measure. The tasks can be assigned to either one or two agents. In the absence...

Persistent link: https://www.econbiz.de/10010293373

A reconsideration of the Jensen-Meckling model of outside finance

Hellwig, Martin - 2007

The paper studies outside finance in a model of two-dimensional moral hazard, involving risk choices as well as effort … greater failure risk than first-best outcomes. For a Cobb-Douglas technology, second-best effort and investment levels are …

Persistent link: https://www.econbiz.de/10010264814

Agency theory meets matching theory

Macho-Stadler, Inés; Pérez-Castrillo, J. David - In: SERIEs - Journal of the Spanish Economic Association 12 (2021) 1, pp. 1-33

The theory of incentives and matching theory can complement each other. In particular, matching theory can be a tool …

Persistent link: https://www.econbiz.de/10014496097

Optimal incentive contracts under moral hazard when the agent is free to leave

Englmaier, Florian; Muehlheusser, Gerd; Roider, Andreas - 2010

We characterize optimal incentive contracts in a moral hazard framework extended in two directions. First, after effort provision, the agent is free to leave and pursue some ex-post outside option. Second, the value of this outside option is increasing in effort, and hence endogenous. Optimal...

Persistent link: https://www.econbiz.de/10010269938

Producer protection legislation and termination damages in the presence of contracting frictions

Wu, Steven Y. - 2009

This study models producer protection legislation that would grant growers the right to claim damages (PPLD) if their contracts are prematurely terminated. In the absence of contracting frictions that prevent contractors from redesigning contracts to accommodate exogenous policy changes, PPLD...

Persistent link: https://www.econbiz.de/10010277255

Optimal Incentive Contracts under Moral Hazard When the Agent is Free to Leave

Englmaier, Florian; Muehlheusser, Gerd; Roider, Andreas - 2010

Persistent link: https://www.econbiz.de/10010333930

Too Few Cooks Spoil the Broth: Division of Labour and Directed Production

Ratto, Marisa; Schnedler, Wendelin - 2008

How can a manager influence workers' activity while knowing little about it? This paper examines a situation where production requires several tasks, and the manager wants to direct production to achieve a preferred allocation of effort across tasks. However, the effort that is required for each...

Persistent link: https://www.econbiz.de/10011422178

Credence goods, costly diagnosis, and subjective evaluation

Bester, Helmut; Dahm, Matthias - 2014

We study contracting between a consumer and an expert. The expert can invest in diagnosis to obtain a noisy signal about whether a low-cost service is sufficient or whether a high-cost treatment is required to solve the consumer's problem. This involves moral hazard because diagnosis effort and...

Persistent link: https://www.econbiz.de/10011444292