Informed principal, moral hazard, and the value of a more informative technology

Hector Chade, Randy Silvers

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

We analyze a principal-agent model with moral hazard in which the principal has private information about the technology. We characterize Perfect Bayesian Equilibria of the contracting game that possess the following properties: (i) a principal with a more informative technology ends up earning less profits than a principal with a less informative one does; (ii) compared to the complete information case, the actions implemented by the privately informed principal can be distorted; (iii) the agent can end up being better off when the principal has private information.

Original languageEnglish (US)
Pages (from-to)291-300
Number of pages10
JournalEconomics Letters
Volume74
Issue number3
DOIs
StatePublished - Feb 2002

Keywords

  • Informed principal
  • Moral hazard
  • Principal-agent

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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