Download This PaperMoral-Hazard in Strategic Decision Making
7 Pages Posted: 12 Sep 2014
Date Written: September 11, 2014
Abstract
Where a manager’s actions are “costless” and influence firm risk, the manager’s career concerns give rise to moral-hazard. The optimal contract cannot be found using the standard techniques as the Monotone Likelihood Ratio Condition does not hold. This difficulty is resolved if an additional Monotone Wage Constraint is imposed on the contracting problem.
Keywords: Principal-agent, moral-hazard, managerial incentives, career concerns.
JEL Classification: D86
Suggested Citation: Suggested Citation
Byford, Martin C., Moral-Hazard in Strategic Decision Making (September 11, 2014). Available at SSRN: https://ssrn.com/abstract=2494645 or http://dx.doi.org/10.2139/ssrn.2494645
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