NDLI: Hunting with Two Bullets: Moral Hazard with a Second Chance

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Hunting with Two Bullets: Moral Hazard with a Second Chance

Content Provider	Scilit
Author	Fagandini, Paulo
Copyright Year	2018
Description	Journal: SSRN Electronic Journal I study the moral hazard problem where an agent can create an extra instance of effort and potentially improve bad realizations of the outcome before the principal observes it. The agent cannot hide the outcome of his effort, but just the way he achieved it. Findings are that both, principal and agent, value the option of improving the outcome in case of a bad realization if doing so is cheap. I also find that contracted effort is not always decreasing in its cost. I also study the situation in which, if the principal can impose short deadlines and eliminate the agent's extra chance, under a broad range of scenarios, the principal will do so when the parameters make agency costs sufficiently high. Finally, if the creation of the extra instance can cause a punishment for the principal, and if that punishment is sufficiently big, the principal will avoid writing contracts that incentive effort only on the extra chance.
Related Links	https://run.unl.pt/bitstream/10362/82724/1/WP629.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3236672
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3236672
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2018-07-21
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Moral Hazard Asymmetric Information Contract Theory Second Chance
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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