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2014 An Uncertain Wage Contract Model with Adverse Selection and Moral Hazard
Xiulan Wang, Yanfei Lan, Jiao Wang
J. Appl. Math. 2014: 1-9 (2014). DOI: 10.1155/2014/282867

Abstract

This paper considers a wage contract design problem faced by an employer (he) who employs an employee (she) to work for him in labor market. Since the employee's ability that affects the productivity is her private information and cannot be observed by the employer, it can be characterized as an uncertain variable. Moreover, the employee's effort is unobservable to the employer, and the employee can select her effort level to maximize her utility. Thus, an uncertain wage contract model with adverse selection and moral hazard is established to maximize the employer's expected profit. And the model analysis mainly focuses on the equivalent form of the proposed wage contract model and the optimal solution to this form. The optimal solution indicates that both the employee's effort level and the wage increase with the employee's ability. Lastly, a numerical example is given to illustrate the effectiveness of the proposed model.

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Xiulan Wang. Yanfei Lan. Jiao Wang. "An Uncertain Wage Contract Model with Adverse Selection and Moral Hazard." J. Appl. Math. 2014 1 - 9, 2014. https://doi.org/10.1155/2014/282867

Information

Published: 2014
First available in Project Euclid: 2 March 2015

zbMATH: 07010586
Digital Object Identifier: 10.1155/2014/282867

Rights: Copyright © 2014 Hindawi

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