CREFI-LSF Working Paper Series N°. N°. 08-01 08-01 Date: February 8, 2008 Title: Moral Hazard: Messages, Delegation and Efficiency Authors*: Andrea Attar IDEI, Toulouse Eloisa Campioni LUISS, University of Rome Gwenaël Piaser CREFI-LSF, University of Luxembourg Uday Rajan Ross School of Business, University of Michigan Abstract: A the present paper we show that messages may improve efficiency even in model of complete information. Messages are useful two main reasons. First, if the principal is not allowed to use stochastic mechanisms, mechanisms with messages can induced mixed strategies and hence indirectly a stochastic outcome. Second, even if stochastic mechanisms are allowed, messages can allow correlation between efforts and outcome. We then argue that indirect mechanisms can be interpreted as delegation and show how simple indirect mechanisms can improve efficiency in a simple model of moral hazard. Keywords: D82, D83, D86 JEL Classification: Efficiency, Moral Hazard, Messages, Correlated Equilibrium, Recommendation, Delegation *Corresponding Author’s Address: CREFI 4b, rue Albert Borschette L-1246 Luxembourg The opinions and results mentioned in this paper do not reflect the position of the Institution. The CREFI-LSF Working Paper Series is available online: http://fdef.uni.lu/ For editorial correspondence, please contact: caroline.herfroy@uni.lu University of Luxembourg Faculty of Law, Economics and Finance 4b, rue Albert Borschette L-1246 Luxembourg