Optimal contracts under competition when uncertainty from adverse selection and moral hazard are present

N. Packham

doi:10.1016/j.spl.2018.01.014

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arXiv · 1801.04080

Optimal contracts under competition when uncertainty from adverse selection and moral hazard are present

N. Packham

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Abstract

In a continuous-time setting where a risk-averse agent controls the drift of an output process driven by a Brownian motion, optimal contracts are linear in the terminal output; this result is well-known in a setting with moral hazard and -under stronger assumptions - adverse selection. We show that this result continues to hold when in addition reservation utilities are type-dependent. This type of problem occurs in the study of optimal compensation problems involving competing principals.

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N. Packham. 2018-01-12. Optimal contracts under competition when uncertainty from adverse selection and moral hazard are present. https://doi.org/10.1016/j.spl.2018.01.014

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