Misperceptions, Moral Hazard, and Incentives in Groups

Martin Gaynor

NBER Technical Working Paper No. 35
Issued in May 1987
NBER Program(s):   HE

Recent work has shown that, in the presence of moral hazard, balanced budget Nash equilibria in groups are not pareto-optimal. This work shows that when agents misperceive the effects of their actions on the joint outcome, there exist a set of sharing rules which balance the budget and lead to a pareto-optimal Nash equilibria.

(339 K)

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Published: Gaynor, Martin. "Misperceptions, Moral Hazard and Incentives in Groups." Managerial and Decision Economics, Vol. 7, No. 4, (1986), pp. 279-282.

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