Characterization of a class of moral-hazard, adverse selection games

Joshua Ronen, Varda Yaari

Research output: Contribution to journalArticlepeer-review

Abstract

Studying a principal-agent game in which the agent alone observes the state of the world and reports it, but the moral hazard is not reducible, shows that, if the principal uses all signals, then no solution exists, i.e. there is no contract that elicits truth-telling and motivates the agent to exert effort. When the principal does not use signals on the state of the world that seem irrelevant, a solution exists in which some of the ex post signals on outcome are not used, even though they obey the informativeness condition of Holmstrom (Bell Journal of Economics, 1979, 10, 74-91).

Original languageEnglish
Pages (from-to)355-358
Number of pages4
JournalEconomics Letters
Volume50
Issue number3
DOIs
StatePublished - 1 Jan 1996
Externally publishedYes

Keywords

  • Adverse selection
  • Moral hazard
  • Principal-agent
  • Truth revelation
  • Voluntary disclosure

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