• Corpus ID: 238582917

Moral Hazard with Heterogeneous Beliefs

  title={Moral Hazard with Heterogeneous Beliefs},
  author={Martin Dumav and Urmee Khan and Luca Rigotti},
We study a model of moral hazard with heterogeneous beliefs where each of agent’s actions gives rise to a pair of probability distributions over output levels, one representing the beliefs of the agent and the other those of the principal. The agent’s relative optimism or pessimism dictates whether the contract is high-powered (i.e. with high variability between wage levels) or low-powered. When the agent is sufficiently more optimistic than the principal, the trade-off between risk-sharing and… 

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