Nonparametric identification of a contract model with adverse selection and moral hazard

Isabelle Perrigne, Quang Vuong

    Research output: Contribution to journalArticle

    Abstract

    This paper studies the nonparametric identification of a contract model with adverse selection and moral hazard. Specifically, we consider the false moral hazard model developed by Laffont and Tirole (1986). We first extend this model to allow for general random demand and cost functions. We establish the nonparametric identification of the demand, cost, deterministic transfer, and effort disutility functions as well as the joint distribution of the random elements of the model, which are the firm's type and the demand, cost, and transfer shocks. The cost of public funds is identified with the help of an instrument. Testable restrictions of the model are characterized.

    Original languageEnglish (US)
    Pages (from-to)1499-1539
    Number of pages41
    JournalEconometrica
    Volume79
    Issue number5
    DOIs
    StatePublished - Sep 1 2011

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    Keywords

    • Adverse selection
    • Contracts
    • Moral hazard
    • Nonparametric identification
    • Procurement
    • Regulation

    ASJC Scopus subject areas

    • Economics and Econometrics

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