Abstract
We study the moral hazard problem without the first-order approach or other common structure. We present sufficient conditions under which the shadow value of simultaneously tightening the minimum payment and individual rationality constraints has a simple and intuitive expression. We then show how this expression can be used to perform comparative statics exercises in which we study (i) the effect of a change in the agent's wealth on the well-being of the principal; and (ii) the effects of the outside option and minimum payment on the effort level optimally implemented.
Original language | English (US) |
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Pages (from-to) | 2313-2343 |
Number of pages | 31 |
Journal | Journal of Economic Theory |
Volume | 148 |
Issue number | 6 |
DOIs | |
State | Published - Nov 2013 |
Keywords
- First-order approach
- Moral hazard
- Principal-agent
ASJC Scopus subject areas
- Economics and Econometrics