Absract:

We consider a principal-agent setup with moral hazard and ex-post risk where the principal is risk-neutral and the agent is either risk-neutral or risk-averse. Under risk neutrality, marginal reward contracts are the sole contracts that guarantee to implement a Pareto-optimal allocation in a prior-free manner. Under risk aversion, contracts that transfer risk from the agent to the principal yield a Pareto-improvement over marginal reward contracts, provided they are incentive compatible. We consider contracts in which the agent signals the project he implements by reporting its expected production, but may misreport it at some cost. We characterize the contracts that always implement a Pareto-improvement over a given marginal reward contract and identify the preferred contract among them, and this robustly to the form of risk aversion and to the technology of the agent. The set of Pareto-improving contracts and the preferred contract depend crucially on how costly it is for the agent to misreport.

Joint work with Clément Leblanc

Location:

Room 1B36, CEPS ENS Paris-Saclay
4 avenue des Sciences, 91190, Gif-sur-Yvette