Optimal Incentive Contracts under Moral Hazard When the Agent is Free to Leave

Konferenzbeitrag

We investigate a moral hazard model with a one-sided commitment problem. That is, after effort provision, the agent is free to either stay with the principal or to leave and pursue his (ex-post) outside option, the value of which is increasing in effort. Depending on parameters, optimal contracts have interesting properties, such as first-best effort incentives, nonresponsiveness to underlying parameters, or inefficient separation. Moreover, the agent might suffer from a ceteris paribus improvement of his outside option. Potential applications of this framework include employment relationships and venture capital financing.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Asymmetric Information and Incentives ; No. A8-V1

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Labor Law ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Subject: moral hazard ; limited commitment ; ex-post outside option ; limited liability

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Roider, Andreas ; Englmaier, Florian ; Mühlheusser, Gerd
• Event: Veröffentlichung
• (who): Verein für Socialpolitik
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/37476
• Last update: 10.03.2025, 11:44 AM CET