Optimal Rating Design under Moral Hazard
Fuente:
arXiv
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| Autori principali: | , |
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| Natura: | Preprint |
| Pubblicazione: |
2020
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| _version_ | 1866914238281285632 |
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| author | Saeedi, Maryam Shourideh, Ali |
| author_facet | Saeedi, Maryam Shourideh, Ali |
| contents | We study optimal rating design under moral hazard and strategic manipulation. An intermediary observes a noisy indicator of effort and commits to a rating policy that shapes market beliefs and pay. We characterize optimal ratings via concavification of a gain function. Optimal ratings depends on interaction of effort and risk: for activities that raise tail risk, optimal ratings exhibit lower censorship, pooling poor outcomes to insure and encourage risk-taking; for activities that reduce tail risk, upper censorship increases penalties for negligence. In multi-task environments with window dressing, less informative ratings deter manipulation. In redistributive test design, optimal tests exhibit mid-censorship. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2008_09529 |
| institution | arXiv |
| publishDate | 2020 |
| record_format | arxiv |
| spellingShingle | Optimal Rating Design under Moral Hazard Saeedi, Maryam Shourideh, Ali Theoretical Economics We study optimal rating design under moral hazard and strategic manipulation. An intermediary observes a noisy indicator of effort and commits to a rating policy that shapes market beliefs and pay. We characterize optimal ratings via concavification of a gain function. Optimal ratings depends on interaction of effort and risk: for activities that raise tail risk, optimal ratings exhibit lower censorship, pooling poor outcomes to insure and encourage risk-taking; for activities that reduce tail risk, upper censorship increases penalties for negligence. In multi-task environments with window dressing, less informative ratings deter manipulation. In redistributive test design, optimal tests exhibit mid-censorship. |
| title | Optimal Rating Design under Moral Hazard |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2008.09529 |