Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/93953 
Year of Publication: 
2010
Series/Report no.: 
SFB/TR 15 Discussion Paper No. 329
Publisher: 
Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY), München
Abstract: 
We characterize optimal incentive contracts in a moral hazard framework extended in two directions. First, after effort provision, the agent is free to leave and pursue some ex-post outside option. Second, the value of this outside option is increasing in effort, and hence endogenous. Optimal contracts may entail properties such as inducing first-best effort and surplus, or non-responsiveness with respect to changes in verifiable parameters. Moreover, while always socially inefficient, separation might occur in equilibrium. Except for the latter, these findings are robust to renegotiation. When the outside option is exogenous instead, the standard results obtain.
Subjects: 
moral hazard
limited commitment
ex-post outside option
limited liability
JEL: 
D86
D82
K31
M52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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