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- Publisher Website: 10.1016/j.jet.2023.105621
- Scopus: eid_2-s2.0-85148676677
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Article: Optimal technology design
Title | Optimal technology design |
---|---|
Authors | |
Keywords | Contract theory Limited liability Moral hazard |
Issue Date | 2023 |
Citation | Journal of Economic Theory, 2023, v. 209, article no. 105621 How to Cite? |
Abstract | This paper considers a moral hazard model with agent limited liability. Prior to interacting with the principal, the agent designs the production technology, which is a specification of his cost of generating each output distribution. After observing the production technology, the principal offers a payment scheme and then the agent chooses a distribution over outputs. We show that there is an optimal design involving only binary distributions (i.e., the cost of any other distribution is prohibitively high), and we characterize the equilibrium technology defined on the binary distributions. Notably, the equilibrium payoff of both players is 1/e. |
Persistent Identifier | http://hdl.handle.net/10722/329925 |
ISSN | 2023 Impact Factor: 1.4 2023 SCImago Journal Rankings: 3.218 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Garrett, Daniel F. | - |
dc.contributor.author | Georgiadis, George | - |
dc.contributor.author | Smolin, Alex | - |
dc.contributor.author | Szentes, Balázs | - |
dc.date.accessioned | 2023-08-09T03:36:29Z | - |
dc.date.available | 2023-08-09T03:36:29Z | - |
dc.date.issued | 2023 | - |
dc.identifier.citation | Journal of Economic Theory, 2023, v. 209, article no. 105621 | - |
dc.identifier.issn | 0022-0531 | - |
dc.identifier.uri | http://hdl.handle.net/10722/329925 | - |
dc.description.abstract | This paper considers a moral hazard model with agent limited liability. Prior to interacting with the principal, the agent designs the production technology, which is a specification of his cost of generating each output distribution. After observing the production technology, the principal offers a payment scheme and then the agent chooses a distribution over outputs. We show that there is an optimal design involving only binary distributions (i.e., the cost of any other distribution is prohibitively high), and we characterize the equilibrium technology defined on the binary distributions. Notably, the equilibrium payoff of both players is 1/e. | - |
dc.language | eng | - |
dc.relation.ispartof | Journal of Economic Theory | - |
dc.subject | Contract theory | - |
dc.subject | Limited liability | - |
dc.subject | Moral hazard | - |
dc.title | Optimal technology design | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/j.jet.2023.105621 | - |
dc.identifier.scopus | eid_2-s2.0-85148676677 | - |
dc.identifier.volume | 209 | - |
dc.identifier.spage | article no. 105621 | - |
dc.identifier.epage | article no. 105621 | - |
dc.identifier.eissn | 1095-7235 | - |
dc.identifier.isi | WOS:000949807600001 | - |