Complete Contracts under Incomplete Information

Gregorio Curello (), Qianjun Lyu () and Yimeng Zhang ()
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Gregorio Curello: University of Mannheim
Qianjun Lyu: University of Bonn
Yimeng Zhang: University of Bonn

No 347, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study a moral hazard model in which the output is stochastically determined by both the agent's hidden effort and an uncertain state of the world. We investigate how the contractibility of the ex-post realization of the state affects the principal's incentive to provide information. While detailed information allows the principal to better tailor the effort levels to the revealed states, coarser information enables the principal to base payments on the ex-post realization of states, thereby designing incentive schemes more effectively. Our main result establishes that when the state is contractible, full information is never optimal; however, when the state is not contractible, under certain conditions, full information is optimal.

Keywords: Moral hazard; contractibility; information design; complete contracts; incomplete contracts (search for similar items in EconPapers)
JEL-codes: D81 D82 D83 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2024-11
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