Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 6, 2022 erstellt
Beschreibung:
Problems involving hidden action are typically solved with incentive contracts. However, they can be solved more efficiently if the agent reliably tells the truth about hidden action. In this paper, we parameterize the agent with an exogenous lying cost. If the cost is high enough, the agent can be offered a first-best contract. If it is not high enough for that, a modified incentive contract can still outperform the classic contract. We consider the loss in efficiency that occurs if offering an incentive contract to an agent reduces their lying cost by communicating untrustworthiness, setting in train a ‘vicious circle.’ We also generalize our model to the case where the agent’s lying cost is her private information. A general insight from our model is that truth-telling proclivity should be made explicit in models because any revelation of hidden information in the real world attenuates rent and inefficiency