Template-Type: ReDIF-Paper 1.0
Title: Double-Sided Moral Hazard, Efficiency Wages and Litigation
Author-Name: Oliver Gürtler
Author-Name: Matthias Kräkel
Author-Email: m.kraekel@uni-bonn.de
Classification-JEL: D86, J33, K41
Keywords: double-sided moral hazard, efficiency wage, litigation contest, settlement
Abstract: We consider a double-sided moral hazard problem where each party
	can renege on the signed contract since there does not exist any verifi-
	able performance signal. It is shown that ex-post litigation can restore
	incentives of the agent. Moreover, when the litigation can be settled
	by the parties the pure threat of using the legal system may suffice
	to make the principal implement first-best effort. As is shown in the
	paper, this finding is rather robust. In particular, it holds for sit-
	uations where the agent is protected by limited liability, where the
	parties have different technologies in the litigation contest, or where
	the agent is risk averse.
Note: 
Length: 36
Creation-Date: 2007-09
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse14_2007.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse14_2007