Roider, Andreas Englmaier, Florian Mühlheusser, Gerd
Year of Publication:
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Asymmetric Information and Incentives A8-V1
We investigate a moral hazard model with a one-sided commitment problem. That is, after effort provision, the agent is free to either stay with the principal or to leave and pursue his (ex-post) outside option, the value of which is increasing in effort. Depending on parameters, optimal contracts have interesting properties, such as first-best effort incentives, nonresponsiveness to underlying parameters, or inefficient separation. Moreover, the agent might suffer from a ceteris paribus improvement of his outside option. Potential applications of this framework include employment relationships and venture capital financing.
moral hazard limited commitment ex-post outside option limited liability