Moral Hazard, Adverse Selection and Reputation: A Synthesis

Abstract

This paper investigates the extent to which the agency problems of moral hazard and adverse selection are ameliorated by agents' desire to build and maintain reputations in a multi‐period environment. We find that reputation effects will tend to ameliorate moral‐hazard‐type agency problems. In the case of adverse selection, however, we show that reputation building may actually compound the agency problem.

Citation

Dobson, A.J. (1993), "Moral Hazard, Adverse Selection and Reputation: A Synthesis", Managerial Finance, Vol. 19 No. 6, pp. 2-8. https://doi.org/10.1108/eb013725