From moral hazard to risk-response feedback

Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement

Deadlines and penalties are widely used to incentivize effort. We model how these incentive contracts affect the work rate and time taken in a procurement setting, characterizing the efficient contract design. Using new micro-level data on Minnesota highway construction contracts that includes day-by-day information on work plans, hours actually worked and delays, we find evidence of moral haza...

Moral Hazard in Dynamic Risk Management

We consider a contracting problem in which a principal hires an agent to manage a risky project. When the agent chooses volatility components of the output process and the principal observes the output continuously, the principal can compute the quadratic variation of the output, but not the individual components. This leads to moral hazard with respect to the risk choices of the agent. To find...

Idiosyncratic Information, Moral Hazard and Risk Premium∗

While much accounting information is idiosyncratic in nature, economy-wide factors such as accounting standards affect the quality of idiosyncratic accounting information of many firms simultaneously. We study these two features of accounting information by embedding a parsimonious, moral hazard problem into the framework of a multi-firm economy in which project choices are endogenous to accoun...

From Hazard to Risk

Environmental Risk Insurance under Dynamic Moral Hazard∗

A firm is subject to accident risk, which the manager can mitigate by exerting effort. An agency problem arises because effort is unobservable and the manager has limited liability. The occurrence of accidents is modelled as a Poisson process, whose intensity is controlled by the manager. We use martingale techniques to formulate the manager’s incentive compatibility constraints. The optimal co...