Access Restriction

Author Englmaier, Florian ♦ Muehlheusser, Gerd ♦ Roider, Andreas
Source EconStor
Content type Text
Publisher Institute for the Study of Labor (IZA)
File Format PDF
Language English
Subject Domain (in DDC) Social sciences ♦ Economics
Subject Keyword Moral hazard ♦ limited commitment ♦ ex-post outside option ♦ limited liability ♦ Anreizvertrag ♦ Arbeitsmobilität ♦ Moral Hazard ♦ Beschränkte Haftung ♦ Theorie ♦ Economics of Contract: Theory ♦ Asymmetric and Private Information; Mechanism Design ♦ Labor Law ♦ Personnel Economics: Compensation and Compensation Methods and Their Effects
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.
Part of series IZA Discussion Papers x5027
Learning Resource Type Article
Publisher Date 2010-01-01
Publisher Place Bonn
Rights Holder