Moral Hazard and Subjective Evaluation

45 Pages Posted: 5 May 2021

See all articles by Shingo Ishiguro

Shingo Ishiguro

Osaka University

Yosuke Yasuda

Osaka University - Graduate School of Economics

Date Written: May 4, 2021

Abstract

This paper investigates optimal contracts to solve the moral hazard problem with subjective evaluations in the static environment in which the principal privately observes agents’ performances. Despite the limitations of feasible contracts that the principal can credibly offer, we show the irrelevance theorem that the principal is never worse off by subjective evaluations in general static environments. This irrelevance result encompasses a large class of static moral hazard problems, including multidimensional actions, production externalities, and interdependent performance signals.

Keywords: Moral Hazard, Multiple Agents, Subjective Evaluation

JEL Classification: D82, D86

Suggested Citation

Ishiguro, Shingo and Yasuda, Yosuke, Moral Hazard and Subjective Evaluation (May 4, 2021). Available at SSRN: https://ssrn.com/abstract=3839295 or http://dx.doi.org/10.2139/ssrn.3839295

Shingo Ishiguro

Osaka University ( email )

1-7 Machikaneyama
Toyonaka
Osaka, 560 0043
Japan

Yosuke Yasuda (Contact Author)

Osaka University - Graduate School of Economics ( email )

1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan

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