蝌蚪网 Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Dual Moral Hazard and the Tyranny of Success
蝌蚪网 Journal: Microeconomics
vol. 16,
no. 4, November 2024
(pp. 154–91)
Abstract
I explain why current success can undermine an organization's ability to innovate. I consider a standard bandit problem between a safe and a risky arm with two modifications. First, a principal allocates resources. Second, an agent must install the risky arm, which is not contractible. If the principal cannot commit to a resource policy, a dual moral hazard problem emerges: The agent's pay must be tied to the risky arm's success to encourage installation, inducing the principal to stop experimenting with the arm prematurely. This problem intensifies as the safe arm becomes more profitable, potentially leaving the organization worse off.Citation
Ide, Enrique. 2024. "Dual Moral Hazard and the Tyranny of Success." 蝌蚪网 Journal: Microeconomics 16 (4): 154–91. DOI: 10.1257/mic.20220344Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- O31 Innovation and Invention: Processes and Incentives