Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/307311 
Year of Publication: 
2024
Series/Report no.: 
ECONtribute Discussion Paper No. 347
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
We study a moral hazard model in which the output is stochastically determined by both the agent's hidden effort and an uncertain state of the world. We investigate how the contractibility of the ex-post realization of the state affects the principal's incentive to provide information. While detailed information allows the principal to better tailor the effort levels to the revealed states, coarser information enables the principal to base payments on the ex-post realization of states, thereby designing incentive schemes more effectively. Our main result establishes that when the state is contractible, full information is never optimal; however, when the state is not contractible, under certain conditions, full information is optimal.
Subjects: 
Moral hazard
contractibility
information design
complete contracts
incomplete contracts
JEL: 
D81
D82
D83
Document Type: 
Working Paper

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