Koehne, S.;
(2009)
The first-order approach to moral hazard problems with hidden saving.
(CDSE Discussion Paper
72).
Center for Doctoral Studies in Economics (CDSE), University of Mannheim: Mannheim, Germany.
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Abstract
This paper proposes a general method to validate the first-order approach for moral hazard problems with hidden saving. I show that strong convexity assumptions both on the agent’s marginal utility of consumption and the distribution function of output arise naturally in this context. The first-order approach is valid given nonincreasing absolute risk aversion (NIARA) utility and log-convex distribution functions (LCDF) with monotone likelihood ratios (MLR). In a second step, I relax the LCDF condition by restricting the class of preferences and by imposing more structure on optimal wage schemes.
| Type: | Working / discussion paper |
|---|---|
| Title: | The first-order approach to moral hazard problems with hidden saving |
| Open access status: | An open access version is available from UCL Discovery |
| Publisher version: | http://cdse.uni-mannheim.de/dipa.php |
| Language: | English |
| Keywords: | Principal-agent problems, moral hazard, hidden savings, first-order approach, log-convexity |
| UCL classification: | UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/18797 |
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