Epsilon-Efficiency in a Dynamic Partnership with Adverse Selection and Moral Hazard

Vi Cao*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


For a dynamic partnership with adverse selection and moral hazard, we design a direct profit division mechanism that satisfies E-efficiency, periodic Bayesian incentive compatibility, interim individual rationality, and ex-post budget balance. In addition, we design a voting mechanism that implements the profit division rule associated with this direct mechanism in perfect Bayesian equilibrium. For establishing these possibility results, we assume that the partnership exhibits intertemporal complementarities instead of contemporaneous complementarities; equivalently, an agent's current effort affects other agents' future optimal efforts instead of current optimal efforts. This modelling assumption fits a wide range of economic settings.

Original languageEnglish
Pages (from-to)73-119
Number of pages47
JournalB.E. Journal of Theoretical Economics
Issue number1
Publication statusPublished - 1 Jan 2023
Externally publishedYes


  • adverse selection
  • dynamic partnership
  • epsilon-efficiency
  • interdependent values
  • moral hazard


Dive into the research topics of 'Epsilon-Efficiency in a Dynamic Partnership with Adverse Selection and Moral Hazard'. Together they form a unique fingerprint.

Cite this