Resource title

Double-sided moral hazard, efficiency wages and litigation

Resource image

image for OpenScout resource :: Double-sided moral hazard, efficiency wages and litigation

Resource description

We consider a double-sided moral hazard problem where each party can renege on the signed contract since there does not exist any verifi- able performance signal. It is shown that ex-post litigation can restore incentives of the agent. Moreover, when the litigation can be settled by the parties the pure threat of using the legal system may suffice to make the principal implement first-best effort. As is shown in the paper, this finding is rather robust. In particular, it holds for sit- uations where the agent is protected by limited liability, where the parties have different technologies in the litigation contest, or where the agent is risk averse.

Resource author

Oliver Gürtler, Matthias Kräkel

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/27155

Resource license

Adapt according to the presented license agreement and reference the original author.