Garrett, Daniel and Georgiadis, George and Smolin, Alex and Szentes, Balazs (2023) Optimal Technology Design. Journal of Economic Theory, 209. p. 105621. DOI https://doi.org/10.1016/j.jet.2023.105621
Garrett, Daniel and Georgiadis, George and Smolin, Alex and Szentes, Balazs (2023) Optimal Technology Design. Journal of Economic Theory, 209. p. 105621. DOI https://doi.org/10.1016/j.jet.2023.105621
Garrett, Daniel and Georgiadis, George and Smolin, Alex and Szentes, Balazs (2023) Optimal Technology Design. Journal of Economic Theory, 209. p. 105621. DOI https://doi.org/10.1016/j.jet.2023.105621
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.
Item Type: | Article |
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Uncontrolled Keywords: | Contract theory; Limited liability; Moral hazard |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 01 Mar 2023 18:27 |
Last Modified: | 10 Aug 2023 01:00 |
URI: | http://repository.essex.ac.uk/id/eprint/34998 |
Available files
Filename: Technology_Design_Merged.pdf
Licence: Creative Commons: Attribution-Noncommercial-No Derivative Works 4.0