The optimal contract under adverse selection in a moral-hazard model with a risk-averse agent
type: Item
instance of: scholarly article
title: The optimal contract under adverse selection in a moral-hazard model with a risk-averse agent
zbMATH Open document ID: 1404.91142
author: François Maréchal
author: Lionel Thomas
published in: Games
publication date: 2018-07-10T00:00:00Z
review text: Summary: This paper studies the optimal contract offered by a risk-neutral principal to a risk-averse agent when the agent's hidden ability and action both improve the probability of the project being successful. We show that if the agent is sufficiently prudent and able, the principal induces a higher probability of success than under moral hazard, despite the costly informational rent given up. Moreover, there is distortion at the top. Finally, the conditions to avoid pooling are difficult to satisfy because of the different kinds of incentives to be managed and the overall trade-off between rent extraction, insurance, and efficiency involved.
Mathematics Subject Classification ID: 91B30
Mathematics Subject Classification ID: 91B16
zbMATH DE Number: 6901022
zbMATH Keywords: adverse selection
zbMATH Keywords: moral hazard
zbMATH Keywords: risk aversion
zbMATH Keywords: prudence
MaRDI profile type: Publication
full work available at URL: g9010012
OpenAlex ID: W2567056335
cites work: Risk-aversion, prudence and temperance
cites work: On the generalized principal-agent problem: a comment
cites work: Ex post participation constraint in a principal-agent model with adverse selection and moral hazard
cites work: Screening risk-averse agents under moral hazard: single-crossing and the CARA case
cites work: Optimal coordination mechanisms in generalized principal-agent problems
cites work: Q4720289
DOI: 10.3390/G9010012
description: scientific article; zbMATH DE number 6901022