Meng, Dawen; Tian, Guoqiang - In: Games and Economic Behavior 77 (2013) 1, pp. 377-404
This paper provides a new explanation for the dominance of the low-powered incentive contract over the high-powered incentive contract using a hybrid model of moral hazard and adverse selection. We first show that unobservable risk aversion or cost leads to low-powered incentives. We then...