Faculty of Business Seminar Series / Başak Altan

Title: Dynamic Moral Hazard with Sequential Tasks

Abstract: We study a moral hazard problem for a project that has two sequential tasks. The second task cannot be started unless the first one is finished. The principal cannot observe the effort of an agent. Task completion and payments to the agents are the only verifiable events. We consider three cases: (i) the principal hires two agents where each agent is responsible for a particular task, (ii) the principal hires one agent for the entire project, (iii) the principal hires an agent for the first task and it is possible to fire him if the first task is not completed until a particular period.  We characterize the equilibrium outcome and compare the results with the efficient case.

Place: Meeting Room AB2-345