henrique castro pires

Dr Henrique Castro-Pires Dr


Academic and research departments

School of Economics, Faculty of Arts and Social Sciences.


Henrique Castro-Pires, Hector Chade, Jeroen Swinkels (2024)Disentangling Moral Hazard and Adverse Selection, In: The American economic review114(1)pp. 1-37 American Economic Association

While many real-world principal-agent problems have both moral hazard and adverse selection, existing tools largely analyze only one at a time. Do the insights from the separate analyses survive when the frictions are combined? We develop a simple method—decoupling—to study both problems at once. When decoupling works, everything we know from the separate analyses carries over, but interesting interactions also arise. We provide simple tests for whether decoupling is valid. We develop and numerically implement an algorithm to calculate the decoupled solution and check its validity. We also provide primitives for decoupling to work and analyze several extensions.

Henrique Castro Pires, Humberto Moreira (2021)Limited Liability and Non-responsiveness in Agency Models, In: Games and Economic Behavior128pp. 73-103 Elsevier

This paper analyzes the optimal menu of contracts offered by a risk-neutral principal to a risk-averse agent under moral hazard, adverse selection, and limited liability. We show that a limited liability constraint causes pooling of the most efficient agent types. We also find sufficient conditions under which full pooling is optimal, regardless of the agent's risk aversion or type distribution. Our model suggests that offering a single contract is often optimal in environments with moral hazard, adverse selection, and in which the principal faces a limited liability constraint. (JEL: D82, D86)