We develop a theory of organization design in which the firm’s structure is chosen to mitigate moral hazard problems in the selection and the implementation of projects. For a given set of projects, the “divisional structure” which gives each agent the full responsibility over a subset of projects is in general more efficient than the functional structure under which projects are implemented by...

In this paper, I argue that it is quite useful, both theoretically and empirically, to adopt a sociocultural approach to the study of moral development. This entails viewing ‘moral functioning’ as a form of mediated action, and moral development as the process by which persons gradually appropriate a variety of ‘moral mediational means’. Mediated action entails two central elements: an ‘agent’,...

We reverse the standard sequence of a complete contracting model: first the agent takes an action, then she alone observes the stochastic outcome and sends a message to the principal. Presuming of the validity of the Revelation Principle, the optimal (direct) mechanism with audit requires a two-part tariff to be offered to the agent, which weakens the ex ante incentives for effort. We then esta...

We examine a principal-agent model with moral hazard in which, after contracting, the principal receives a signal correlated with the technology. We call this ex ante contracting and examine the value of information both when the principal has private information and when information is public. We show that: (i) the principal prefers private information to no information; (ii) the principal pre...

We review the optimality of partial insurance contracts in the presence of moral hazard when consumers are affected by probability weighting. In valuing risky prospects individuals commonly overweight extreme outcomes at the expense of intermediate outcomes; these deviations systematically bias the ex-ante value of insurance. We characterize optimal contracts for the case of perfectly competiti...

In a principal-agent environment with moral hazard and symmetric information, having or acquiring a more informative technology lowers the cost to implement a given action. Contracting may occur after or before the principal learns her technology. We show that when the principal has or will acquire private information about her technology, (i) with ex post contracting, the value of information ...

We analyse an economy where principals and agents match and contract subject to moral hazard. Bankruptcy law defines the limited liability constraint in these contracts. We analyse Walrasian allocations to generate the following predictions: (i) weakening bankruptcy law causes redistribution of debt and welfare from poor agents and principals to rich agents; (ii) exemption limits Pareto-dominat...

This paper studies the efficiency of competitive equilibria in environments with a moral hazard problem and unobserved states, both with retrading in ex post spot markets. The interaction between private information problems and the possibility of retrade creates an externality, unless preferences have special, restrictive properties. The externality is internalized by allowing agents to contra...

In a principal-agent environment with moral hazard, when contracting occurs after the principal receives information about her technology, the principal cannot insure against the possibility that the technology is less informative. From an ex ante perspective, we show that: (i) the principal is worse off by acquiring private information if the agent will know that she is informed; (ii) the valu...