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