Economics, Econometrics and Finance
4 years ago

Unveiling the Hidden Risks of Moral Hazard: Impact on Incentives

SSRN Electronic Journal
Moral Hazard: Base Models and Two Extensions
Inés Macho‐Stadler, David Pérez‐Castrillo

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The article explores how to design fair contracts when you can't check if someone is working hard. It looks at balancing rewards for effort with sharing risks, preventing agents from taking advantage of limited liability, and motivating workers in different tasks. It also considers how people's biases can affect incentives and how the principal-agent problem plays out in a matching market.