Premium
Regulation and altruism
Author(s) -
Jelovac Izabela,
Kembou Nzale Samuel
Publication year - 2020
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12368
Subject(s) - regulator , moral hazard , adverse selection , altruism (biology) , outcome (game theory) , microeconomics , economics , incentive , business , psychology , biology , social psychology , biochemistry , gene
We study optimal contracts in a regulator–agent setting with joint production, altruistic and selfish agents, limited liability, and uneasy outcome measurement. Such a setting represents sectors of activities such as education and healthcare provision. The agents and the regulator jointly produce an outcome for which they all care to some extent that is varying from agent to agent. Some agents, the altruistic ones, care more than the regulator does while others, the selfish agents, care less. Moral hazard is present due to both the agent's effort and the joint outcome that are not contractible. Adverse selection is present too since the regulator cannot a priori distinguish between altruistic and selfish agents. Contracts consist of a simple transfer from the regulator to the agents together with the regulator's input in the joint production. We show that, under the conditions of our setting and when we face both moral hazard and adverse selection, the regulator maximizes welfare with a menu of contracts, which specify higher transfers for the altruistic agents and higher regulator's inputs for the selfish agents.