Abstract
Consider the optimal incentive compatible contract offered by a firm with private information to its risk-averse employees. If the firm is subject to a binding limited liability or bankruptcy constraint then the contract will yield underemployment in low productivity states (relative to full-information efficiency). Such contracts either yield underemployment in all states, or excessively high variability in employment.
Original language | English (US) |
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Pages (from-to) | 343-365 |
Number of pages | 23 |
Journal | Journal of Economic Theory |
Volume | 35 |
Issue number | 2 |
DOIs | |
State | Published - Aug 1985 |
ASJC Scopus subject areas
- Economics and Econometrics