Misperceptions, Moral Hazard, and Incentives in Groups
NBER Technical Working Paper No. 35
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.
Published: Gaynor, Martin. "Misperceptions, Moral Hazard and Incentives in Groups." Managerial and Decision Economics, Vol. 7, No. 4, (1986), pp. 279-282.