2023/04/17 by Sinander, Ludvig · 1 citation
#FOS: Economics and business #Theoretical Economics (econ.TH)
paper · doi:10.48550/arxiv.2304.08343
I revisit the standard moral-hazard model, in which an agent's preference over contracts is rooted in costly effort choice. I characterise the behavioural content of the model in terms of empirically testable axioms, and show that the model's parameters are identified. I propose general behavioural definitions of relative (over)confidence and optimism, and characterise these in terms of the parameters of the moral-hazard model. My formal results are rooted in a simple but powerful insight: that the moral-hazard model is closely related to the well-known 'variational' model of choice under uncertainty.