Economics, Econometrics and Finance
8 years ago

New Study Reveals Optimal Contracts for Adverse Selection and Moral Hazard

Review of Financial Studies
Optimal Contracts Under Adverse Selection and Moral Hazard: A Continuous-Time Approach
Jaeyoung Sung

Paper Summary

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The article explores how to create the best contracts when dealing with hidden information and risks in financial settings. The researchers use a continuous-time approach to analyze the problem. They find that optimal contracts can be designed to address both adverse selection and moral hazard issues, leading to better outcomes for all parties involved.