NDLI: Dynamic moral hazard without commitment

Content Provider	Springer Nature Link
Author	Hörner, Johannes Samuelson, Larry
Copyright Year	2015
Abstract	We study a discrete-time model of repeated moral hazard without commitment. In every period, a principal finances a project, choosing the scale of the project and a contingent payment plan for an agent, who has the opportunity to appropriate the returns of a successful project unbeknownst the principal. The absence of commitment is reflected both in the solution concept (perfect Bayesian equilibrium) and in the ability of the principal to freely revise the project’s scale from one period to the next. We show that removing commitment from the equilibrium concept is relatively innocuous—if the players are sufficiently patient, there are equilibria with payoffs low enough to effectively endow the players with the requisite commitment, within the confines of perfect Bayesian equilibrium. In contrast, the frictionless choice of scale has a significant effect on the project’s dynamics. Starting from the principal’s favorite equilibrium, the optimal contract eventually converges to the repetition of the stage-game Nash equilibrium, operating the project at maximum scale and compensating the agent (only) via immediate payments.
Starting Page	89
Ending Page	136
Page Count	48
File Format	PDF
ISSN	00207276
Journal	International Journal of Game Theory
Volume Number	45
Issue Number	1-2
e-ISSN	14321270
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2015-09-02
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Dynamic moral hazard Commitment Asymmetric information Principal-agent Cash flow diversion Economic Theory/Quantitative Economics/Mathematical Methods Game Theory, Economics, Social and Behav. Sciences Behavioral/Experimental Economics Operation Research/Decision Theory
Content Type	Text
Resource Type	Article
Subject	Statistics and Probability Social Sciences Economics and Econometrics Statistics, Probability and Uncertainty

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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