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Presented By: Department of Economics

Who and How? Adverse Selection and Flexible Moral Hazard (by Henrique Castro-Pires, Deniz Kattwinkel, and Jan Knoepfle)

Henrique Castro-Pires, Harvard Business School

Henrique Castro-Pires Henrique Castro-Pires
Henrique Castro-Pires
We characterize incentive compatible mechanisms in environments with hidden types and flexible hidden actions. Our approach introduces extended recommendation schedules that specify prescribed actions also off-path, after misreports. This approach yields a tractable and complete characterization of incentive compatibility, which includes a generalized integral monotonicity condition capturing the interaction between adverse selection and moral hazard. We demonstrate the usefulness of the characterization across a range of contracting problems.
Henrique Castro-Pires Henrique Castro-Pires
Henrique Castro-Pires

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