|Reinshagen, Felix (2012): Standards and Incentives under Moral Hazard with Limited Liability. Discussion Papers in Economics 2012-9|
We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent’s effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The principal’s optimal contract gives the agent no rent and – in contrast to the first-best allocation – uses toomuch observable effort and too little unobservable effort. This distortion in the relative use of the two kinds of effort increases if the agent’s liability becomes more limited.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||moral hazard, two-dimensional effort, regulation|
Economics > Discussion Papers in Economics
|Subjects:||300 Social sciences > 330 Economics|
|JEL Classification:||D82, D86, K32|
|Deposited On:||09. Feb 2012 11:20|
|Last Modified:||25. May 2012 05:07|
BHOLE, B. AND J. WAGNER (2008): “The joint use of regulation and strict liability with multidimensional care and uncertain conviction,” International Review of Law and Economics, 28, 123–132.
BUTTLE, F. (1997): “ISO 9000: marketingmotivations and benefits,” International Journal of Quality & Reliability Management, 14, 936–947.
HERAS SAIZARBITORIA, I., G. ARANA LANDÍN, AND M. CASADESÚS FA (2006): “A Delphi study on motivation for ISO 9000 and EFQM,” International Journal of Quality & Reliability Management, 23, 807–827.
HOLMSTROM, B. AND P. MILGROM (1991): “Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design,” Journal of Law, Economics and Organization, 7, 24–52.
KRÄKEL, M. AND A. SCHÖTTNER (2010): “Minimumwages and excessive effort supply,” Economics Letters, 108, 341 – 344.
LAUX, C. (2001): “Limited-Liability and Incentive Contracting withMultiple Projects,” RAND Journal of Economics, 32, 514–26.
NAGATANI, K. (1978): “Substitution and Scale Effects in Factor Demands,” Canadian Journal of Economics, 11, 521–27.
STRAUSZ, R. (2006): “Buried in paperwork: Excessive reporting in organizations,” Journal of Economic Behavior & Organization, 60, 460–470.
TREBILCOCK, M. AND R. A. WINTER (1997): “The economics of nuclear accident law,” International Review of Law and Economics, 17, 215–243.