Technological Design and Moral Hazard

13 Pages Posted: 6 Dec 2012

See all articles by Edward S. Prescott

Edward S. Prescott

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: 2005

Abstract

Technological choice by a principal is added to the standard moral hazard model. It is argued that this is an important margin of choice. Two examples are provided in which the choice has significant implications. In one it drastically simplifies the optimal contract. In the other, it demonstrates that the principal may be willing to choose a technologically inferior means of production to ease incentive problems.

Suggested Citation

Prescott, Edward (Ned) Simpson, Technological Design and Moral Hazard (2005). FRB Richmond Economic Quarterly, vol. 91, no. 4, Fall 2005, pp. 43-55. Available at SSRN: https://ssrn.com/abstract=2185553

Edward (Ned) Simpson Prescott (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

P.O. Box 6387
Cleveland, OH 44101
United States

HOME PAGE: http://https://www.clevelandfed.org/people-search?pid=f8ca941e-4b51-41f6-95f8-c87f1d3806e5

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