Optimal Delegated Search with Adverse Selection and Moral Hazard

Ulbricht, Robert (2016) Optimal Delegated Search with Adverse Selection and Moral Hazard. Theoretical Economics, 11 (1). pp. 253-278.

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Official URL: http://tse-fr.eu/pub/28986

Abstract

The paper studies a model of delegated search. The distribution of search revenues is unknown to the principal and has to be elicited from the agent in order to design the optimal search policy. At the same time, the search process is unobservable, requiring search to be self-enforcing. The two information asymmetries are mutually enforcing each other; if one is relaxed, delegated search is efficient. With both asymmetries prevailing simultaneously, search is almost surely inefficient (it is stopped too early). Second-best remuneration is shown to optimally utilize a menu of simple bonus contracts. In contrast to standard adverse selection problems, indirect nonlinear tariffs are strictly dominated.

Item Type: Article
Language: English
Date: January 2016
Refereed: Yes
Uncontrolled Keywords: adverse selection, bonus contracts, delegated search, moral hazard, optimal stopping
JEL codes: C72 - Noncooperative Games
D82 - Asymmetric and Private Information
D83 - Search; Learning; Information and Knowledge; Communication; Belief
D86 - Economics of Contract - Theory
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:55
Last Modified: 15 May 2019 13:28
OAI ID: oai:tse-fr.eu:28986
URI: http://publications.ut-capitole.fr/id/eprint/16692

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