Timeline for What is the implicaiton of agent risk neutrality in moral hazard?
Current License: CC BY-SA 4.0
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| Dec 5, 2019 at 7:04 | comment | added | Herr K. | @Aqqqq: No, the second best problem is not the same as the first best, even with risk neutral agent. Both participation and incentive compatibility constraints will be binding in equilibrium, regardless of the agent's risk attitude. In particular, this means the agent will be as well as his outside option. But since different risk attitudes imply different utility functions, the equilibrium wages to the agent will generally be different based on risk attitudes. | |
| Dec 5, 2019 at 6:13 | comment | added | Aqqqq | Thank you for your answer. Am I correct that it is only the payoff of the principal that is the same in second best and first best if the agent is risk-neutral (i.e. the wage to the agents do not have to be equal)? | |
| Dec 5, 2019 at 6:07 | vote | accept | Aqqqq | ||
| Dec 5, 2019 at 3:37 | history | edited | Herr K. | CC BY-SA 4.0 |
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| Dec 5, 2019 at 3:31 | history | answered | Herr K. | CC BY-SA 4.0 |