We characterize the optimal contract between a principal and a risk-neutral, wealth-constrained agent when an adverse selection problem follows a moral hazard problem. The optimal contract in this setting often is more steeply sloped for the largest output levels than is the optimal contract in either the standard moral hazard setting or the standard adverse selection setting. The large incremental rewards for exceptional performance motivate the agent to deliver substantial effort both before and after he acquires privileged information about the production environment.
Bio: Leon Zhu is an associate professor of Data Sciences and Operations in the Marshall School of Business. He received his Ph.D. in Industrial and Systems Engineering and M.A. in Economics from the University of Florida and a Bachelor degree from Shanghai Jiaotong University. Before joining Marshall, he was a Postdoc and lectured at the University of California, Berkeley.
His research interests include policy and mechanism design, game theory, and applied optimization. Professor Zhu's papers have appeared in the leading journals, including the American Economic Review, Journal of Economic Theory, Management Science, Manufacturing and Service Operations Management, Operations Research, and Rand Journal of Economics.
Professor Zhu teaches the core operations management and an elective on operations forensics at Marshall School of Business.