Informed Principal, Moral Hazard, and Limited Liability
28 Pages Posted: 11 Dec 2017 Last revised: 24 Dec 2020
Date Written: July 8, 2018
I consider a moral hazard problem with risk neutral parties, limited liability, and an informed principal. The contractible outcome is correlated to both the principal's private information and the agent's hidden action. In contrast to a model without a privately informed principal or without limited liability, I show that the first-best payoff cannot be implemented by any equilibrium mechanism.
Keywords: Informed principal, limited liability, moral hazard
JEL Classification: D82, D86
Suggested Citation: Suggested Citation