Moral Hazard and Observability
Volume: Volume 10, No. 1
Issue: Spring 1979
Pages: pp. 74-91
Authors: Bengt Holmström
Title: Moral Hazard and Observability
Abstract: The role of imperfect information in a principal-agent relationship subject to moral hazard is considered. A necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived, and a characterization of the optimal use of such information is given.
JEL Classification
Economics of Uncertainty and Information Game Theory and Bargaining Theory: General (0260)