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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Compensation Disparity between Risk Averse Agents under Adverse Selection and Moral Hazard

Vol.32, No.2, June , 74–91



  •   (Ewha Womans University)

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Abstract  

We extend the LEN moral hazard model to allow for adverse selection and derive the optimal incentive contract menu. We show that both moral hazard and adverse selection separately cause compensation disparity between agents with different degrees of risk aversion. We also show that adverse selection aggravates the compensation disparity when more risk averse agents form a minority of the agent population.


Keywords
   Incentive Contract, Pay Gap, LEN Model

JEL classification codes
   D82, J31, M52
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