Simple contracts with adverse selection and moral hazard

We study a principal–agent model with moral hazard and adverse selection. Risk‐neutral agents limited liability have arbitrary private information about the distribution of outputs cost effort. show that under multiplicative separability condition, optimal mechanism offers single contract. This condition holds, for example, when output is binary. If principal's payoff must also satisfy free disposal has monotone likelihood ratio property, debt Our results generalize if “close” to multiplicatively separable. suggests offering contract may be in environments selection are risk‐neutral liability.