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The No-Upward-Crossing Condition and the Moral Hazard Problem

Abstract

We revisit the first-order approach to the moral hazard problem. Our fundamental claim is that in well-behaved problems, a condition we term No Upward Crossing (NUC) holds. We show how NUC facilitates analysis by both simplifying the relevant conditions for the validity of the first-order approach and giving them an economic interpretation. We provide extensive analysis of sufficient conditions for the first-order approach for exponential families. Moreover, we give foundations for NUC based on an intuitive statistical thought experiment.

Type

Working Paper

Author(s)

Jeroen Swinkels, Hector Chade

Date Published

2017

Citations

Swinkels, Jeroen, and Hector Chade. 2017. The No-Upward-Crossing Condition and the Moral Hazard Problem.

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