ABSTRACT
Basov & Bhatti on the role of social norms in mitigating moral hazard, and Arbi on analyzing DM contracts using contract theory. Both build upon the basic principal-agent model but in different ways and to investigate different things. Basov & Bhatti provide a very convenient model for our purposes. They explore the tradeoffs between high-powered material incentives and adherence to a social norm. Basov and Bhatti's model can be seen as a basic template for applying our ideas concerning an Islamic economic agent in a moral hazard setting. It is attractive because it is relatively simple, readily recognized in conventional economics, accommodates our concern for the intention of the agent, and can still be extended to facilitate evolution of the agent perhaps drawing upon models in which the principal-agent interaction is repeated. Arbi's model is more related to the second component of our ideal Islamic economic agent model, namely concerning the specific religious injunctions related to a given economic activity.
