Moral Hazard and Other-Regarding Preferences

Itoh, Hideshi

doi:10.2139/ssrn.454500

Cited by 46 publications

(72 citation statements)

References 38 publications

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“…Despite the general tendency of inequity aversion to generate wage compression, Itoh (2004), Rey-Biel (2008), and Bartling and von Siemens (2010) identify some conditions under which increased pay inequality can result. Specifically, if limited liability prevents the principal from punishing the agent by reducing her pay, he can instead punish her by paying another agent more.…”

Section: Reduced Wage Sensitivitymentioning

confidence: 99%

Behavioral Contract Theory

Kőszegi

2014

Journal of Economic Literature

268

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This review provides a critical survey of psychology-and-economics (“behavioral-economics”) research in contract theory. First, I introduce the theories of individual decision making most frequently used in behavioral contract theory, and formally illustrate some of their implications in contracting settings. Second, I provide a more comprehensive (but informal) survey of the psychology-and-economics work on classical contract-theoretic topics: moral hazard, screening, mechanism design, and incomplete contracts. I also summarize research on a new topic spawned by psychology and economics, exploitative contracting, that studies contracts designed primarily to take advantage of agent mistakes. (JEL A12, D03, D82, D86)

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Section: Reduced Wage Sensitivitymentioning

confidence: 99%

Behavioral Contract Theory

Kőszegi

2014

Journal of Economic Literature

268

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“…For example, Stevens and Thevaranjan (2010) assert that the issue of moral hazard can be resolved in the principal-agent model if the agents are sensitised morally. 4 Likewise, Itoh (2004) proclaims that the presence of other-regarding preferences is of central concern in resolving the issue of moral hazard. We also have some other suggestions for minimising moral hazards like peer pressure in team work [Corgnet, et al (2015)]; the recommendation of deductible in insurance [Raaij (2016)]; prudential regulations in financial sector [Hellmann, et al (2000)] etc.…”

Section: Introductionmentioning

confidence: 99%

Moral Hazard, Monitoring and Punishment: Evidence from a Field Experiment

Shah¹,

Khan²,

Zubair³

2019

PDR

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The existing literature establishes that there exists inefficiency in energy consumption in Pakistan. In particular, with regard to electricity consumption, the problem of moral hazard is prevalent in the public sector. In this study, we observe this aspect by focusing on the behaviour of consumers once they are held liable to monitoring with the associated punishment mechanism. By providing evidence from a field experiment, we make three conclusions. First, individuals respond to both the monetary and non-monetary punishments. Alternatively, with the introduction of punishments, they reduce moral hazard with respect to electricity consumption. Second, the habitual violators of rules reform their behaviour after they are made accountable for their actions. Third, if appropriate monitoring systems along with the associated punishment mechanism are introduced, we can have beneficial effects in terms of resolving the energy crisis on the aggregate level. JEL Classification: H83, D12, D00, D03, D04 Keywords: Moral Hazard, Monitoring, Punishment, Electricity Consumption, Public Sector

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“…It is observed that other-regarding preferences may have a positive role in moral hazard situations [17][18][19]. The observation has stimulated research into a theoretical analysis of the contract theory.…”

Section: Introductionmentioning

confidence: 99%

Venture Capital Contracting with Double-Sided Moral Hazard and Fairness Concerns

Chang

2018

Mathematical Problems in Engineering

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The development of new venture enterprise is the result of joint efforts of entrepreneurs and venture capitalists who collaborate based on complementary resources. In this paper, we analyze a venture capital incentive contracting model in which a venture capitalist interacts with an entrepreneur who is risk neutral and fairness concerned, offering him an equity contract. We solve the venture capitalist’s maximization problem in the presence of double-sided moral hazard. Our results show that fairness concerns change the structure of the optimal contract. More importantly, we show that the solution to the contract regarding the optimal share given to the entrepreneur is nonlinear and is a fixed point between 0 and 1. Further, we simulate the model under the assumption that venture project’s revenue is a Constant Elasticity of Substitution (CES) function and obtain the following results. (1) When the two efforts are complementary, the venture capitalist’s effort does not monotonically decrease in the share allocated to the entrepreneur, while the entrepreneur’s effort does not monotonically increase in his share. (2) Relative to the benchmark case where the entrepreneur is fairness neutral, the optimal equity share allocated to the fair-minded entrepreneur is larger than 1/2, and as the degree of efforts complementarity increases, the optimal equity share tends to 60%. In this scenario, for a given efforts substitution parameter, the fair-minded entrepreneur provides a higher effort level than the venture capitalist.

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Moral Hazard and Other-Regarding Preferences

Cited by 46 publications

References 38 publications

Behavioral Contract Theory

Behavioral Contract Theory

Moral Hazard, Monitoring and Punishment: Evidence from a Field Experiment

Venture Capital Contracting with Double-Sided Moral Hazard and Fairness Concerns

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