Published May 31, 2019
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Informed Principal, Moral Hazard, and Limited Liability
- Creators
- Mekonnen, Teddy
Abstract
I consider a moral hazard problem with risk neutral parties, limited liability, and an informed principal. The contractible outcome is correlated to both the principal's private information and the agent's hidden action. In contrast to a model without a privately informed principal or without limited liability, I show that the first-best payoff cannot be implemented by any equilibrium mechanism. Furthermore, limited liability precludes the existence of equilibrium refinements such as (Strongly) Neologism proofness.
Additional Information
I am grateful to Eddie Dekel, Asher Wolinsky, and Bruno Strulovici for their invaluable comments.Attached Files
Submitted - Informed_principal_moral_hazard-3.pdf
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Informed_principal_moral_hazard-3.pdf
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Additional details
- Eprint ID
- 96006
- Resolver ID
- CaltechAUTHORS:20190531-111003492
- Created
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2019-05-31Created from EPrint's datestamp field
- Updated
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2021-11-16Created from EPrint's last_modified field