Limited liability and non-responsiveness in moral hazard and adverse selection problems

Description

Submitted by Henrique Brasiliense de Castro Pires ([e-mail]) on 2016-05-04T18:32:36Z
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Previous issue date: 2016-03-21 / This work analyses the optimal menu of contracts offered by a risk neutral principal to a risk averse agent under moral hazard, adverse selection and limited liability. There are two output levels, whose probability of occurrence are given by agent’s private information choice of effort. The agent’s cost of effort is also private information. First, we show that without assumptions on the cost function, it is not possible to guarantee that the optimal contract menu is simple, when the agent is strictly risk averse. Then, we provide sufficient conditions over the cost function under which it is optimal to offer a single contract, independently of agent’s risk aversion. Our full-pooling cases are caused by non-responsiveness, which is induced by the high cost of enforcing higher effort levels. Also, we show that limited liability generates non-responsiveness.

Links & Downloads

1. PIRES, Henrique Brasiliense de Castro. Limited liability and non-responsiveness in moral hazard and adverse selection problems. Dissertação (Mestrado em Economia) - FGV - Fundação Getúlio Vargas, Rio de Janeiro, 2016.
2. http://hdl.handle.net/10438/16532

Tags

Adverse selection

Non-responsiveness

Pooling

Moral hazard

Limited liability

Economia

Responsabilidade limitada

Risco moral

Informação assimétrica

Additional Fields

Identifer	oai:union.ndltd.org:IBICT/oai:bibliotecadigital.fgv.br:10438/16532
Date	21 March 2016
Creators	Pires, Henrique Brasiliense de Castro
Contributors	Camargo, Bráz Ministério de, Escobar, Andres, Escolas::EPGE, FGV, Moreira, Humberto Ataíde
Source Sets	IBICT Brazilian ETDs
Language	English
Detected Language	English
Type	info:eu-repo/semantics/publishedVersion, info:eu-repo/semantics/masterThesis
Source	reponame:Repositório Institucional do FGV, instname:Fundação Getulio Vargas, instacron:FGV
Rights	info:eu-repo/semantics/openAccess