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Questions tagged [principal-agent]

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Fake long-term deposits

Story#1 Say banks have two saving options for you: one-year option or month-by-month flex option. Say the flex option give a annualized rate of 2 percent, and the one-year option gives 5 percent (...
High GPA's user avatar
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Delegation to a Biased agent

Can somebody give an example for a biased agent who want to put more time in information acquisition then the principal?
user848273982398's user avatar
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Principal agent problem with correlated output

I am a bit confused by one question I am working on since some of the questions seem to suggest a differnt answer from the one I get in the earlier question. Here is the exercise and my working. One ...
Three Diag's user avatar
6 votes
2 answers
165 views

Integrate a sufficient statistic

I have a few mathematical problems with the paper Moral hazard in teams 1982. How do I get from (2) to (1) by integrating and why is the qualification necessary "for almost all" $$g(y,a)=h_i(...
contracttheory's user avatar
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0 answers
80 views

Incentive compatibility constraint with continuous types

I have a Principal agent problem where principal knows about the information about the agent which is critical to both the parties. Principal is a business tycoon who has an inside information about ...
Elina Gilbert's user avatar
8 votes
1 answer
79 views

Is "avoiding being the bearer of bad news" an example of the "principal-agent problem"?

For example: A king designs a bridge, and he unknowingly does a bad job. He asks an engineer for her opinion, but the engineer fears that if she tells the truth, the dictator will be angry with her. ...
wintergreen_plaza's user avatar
2 votes
1 answer
28 views

locating specific model from organizational economics

I am trying to find one specific model from organizational economics that I encountered in one of my past classes, but I cant remember the name of the model and google scholar search based on some of ...
1muflon1's user avatar
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1 vote
0 answers
23 views

Is it customary for sellers to pay the commission in brokered transactions?

This question focuses on brokered transactions where 1) the intermediaries act as brokers (agents), not dealers, and 2) where both sides have an agent. In the U.S., in buying/selling houses, it is ...
J Li's user avatar
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3 votes
2 answers
55 views

Signalling in a moral hazard contract with informed principals (that know their own type before contracting)

I was studying Laffont & Martimort textbook for a paper, but their section on moral hazard contract with informed principals assumes that the principal only knows his own type after contracting. ...
Iriki's user avatar
  • 61
2 votes
1 answer
170 views

Principal-Agent Problem with Two Agents

Consider the following principal-agent problem. You are a manager in charge of two workers, indexed with $i=1,2$. Each worker is asked to perform a particular task, and each can either work hard at ...
rudgns55's user avatar
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3 votes
0 answers
89 views

Perfect Bayesian Equilibrium for banks

I'm reading this paper on credit lending cycles and trying to understand how it works for the case of one bank. This is the set-up of the model: There are two players, a bank and the market. There ...
Meera Unni's user avatar
0 votes
1 answer
129 views

Limited Liability in Agency Problem

Consider a simple one-period model where a creditor provides $I$ as investment to a firm and firm produces $\pi_G$ or $\pi_B$ depending on its performance. Let $R_i$ the portion of the profit that the ...
Frank Swanton's user avatar
1 vote
2 answers
656 views

What is the implicaiton of agent risk neutrality in moral hazard?

I heard that risk-neutrality of agent in moral hazard imply that the action associated with first-best and the one associated with second-best will be the same. Is it true and why is it so? Are there ...
Aqqqq's user avatar
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2 votes
1 answer
160 views

What does "steep incentive contract" mean in the context of adverse selection?

This term was mentioned in a slide and when I looked online, the only thing which I could find talking about this is this paper. For example,in the cost-plus-incentive contract $$x(T, c) = a(T) - a'...
Aqqqq's user avatar
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4 votes
2 answers
112 views

What does commitment in adverse selection mean?

In this slide deck, p15. it says "The revelation principle requires that the principal can fully commit to the terms of the contract. If this is not the case, an indirect mechanism, which allows for ...
Aqqqq's user avatar
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0 votes
1 answer
450 views

What is "indirect mechanism" in the context of adverse selectoin?

On this slide deck, page 12, it says "then this direct mechanism implements exactly the same allocation as the indirect mechanism we started". What is indirect mechanism in this context and in ...
Aqqqq's user avatar
  • 392
3 votes
1 answer
528 views

Relation between incomplete contracting and the principal agent problem?

I have read about incomplete contracts in the context of vertical integration of firms, in which the two contracting parties are relatively "symmetric" (we cannot say that one is the agent and the ...
user8301's user avatar
  • 133
2 votes
1 answer
228 views

First order conditions in a Moral Hazard problem

Consider a principal-agent problem where effort is observable. Let $\pi$ denote profit, let $w$ denote the wage to be paid to the agent, and let $f(\pi|e)$ denote the pdf of the profit, conditional on ...
Student's user avatar
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5 votes
1 answer
587 views

First paper to introduce the "principal-agent problem"

The principal-agent problem is to some extent an intuitive thing that even ancient kings must have thought about. But what is the first journal paper that has introduced the term "principal" and "...
user8301's user avatar
  • 133
5 votes
1 answer
192 views

General mathematical model of incomplete contracts?

I have read various articles about incomplete contracts, like Hart's papers and Milgrom's papers. But I have not found a paper that defines mathematically, in the most general way possible, what an ...
user8301's user avatar
  • 133
2 votes
1 answer
358 views

Question on uncertainity

Please imagine that Nicole is uncertain of her future wealth. Her wealth in the bad state of the world is zero. Her wealth in the good state is $w>0$. Each state is initially equally likely. ...
b11bb's user avatar
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4 votes
3 answers
2k views

What are some good books and articles about the principal-agent problem?

What are some good books and articles about the principal-agent problem? I'm looking for introductory academic books/articles or "popular-science" kind of ones.
qazwsx's user avatar
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4 votes
0 answers
130 views

Principal's beliefs in a repeated moral hazard problem

I have a question about models of repeated principal-agent models. There is this famous piece by Bengt Holmstrom: Moral hazard and observability, 1979, The Bell Journal of Economics. It presents the ...
GuiWil's user avatar
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1 vote
0 answers
241 views

Estimate the Utility function for the Principal-Agent problem (real case)

I have a company and I have to set the wage to my employer based on different levels of revenues. Examples W_1 if Revenue = 100k ...
sparkle's user avatar
  • 177
2 votes
1 answer
361 views

difference between screening game and moral hazard game

What is the difference between screening game and moral hazard game? I know that in screening game, TYPE is not known by the principal, while in moral hazard game, EFFORT is not observed by the ...
ycenycute's user avatar
  • 151
1 vote
1 answer
2k views

Binding constraints at second-best optimum

I am dealing with ex-ante asymmetric information problems, i.e. adverse selection and in particular I cannot understand what's the intuition behind the fact that only two out of four constraints ...
PhDing's user avatar
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8 votes
1 answer
527 views

LEN-Model equivalency

Starting position is a principal-agent-model with incomplete information (moral hazard) and the following properties: Agent utility: $u(z)=-e^{(-r_az)}$ Principal utility: $B(z)=-e^{(-r_pz)}$ Effort ...
Fusscreme's user avatar
  • 287
8 votes
2 answers
1k views

Moral Hazard with risk neutral agent

We have a principal-agent model with hidden actions in which the principal is risk averse and the agent is risk neutral; Assume also there are two levels of output, $x$ and $x'$ (with $x'>x$) and ...
night_owl89's user avatar
1 vote
1 answer
111 views

Principal Agent Question Private Benefit

If an agent can take action which impacts social welfare in a noisy way, the private net benefit of the action is $P(x,t)=x-s(\frac{x^2}{2} + t)$, $s$ is $(0,1)$ How can I determine the privately ...
SMK's user avatar
  • 17
0 votes
0 answers
244 views

Principal agent question

Principal is interested in buying lake. The revenues of operating the lake as a camping site are determined by the weather (a random parameter $w$ distributed uniformly on $[0, 1]$) and by the ...
124qqq's user avatar
  • 27
3 votes
1 answer
76 views

Delegation with Discreteness

Consider a game of delegation. An uninformed principal must delegate some task to an informed agent with preferences imperfectly aligned. I'm aware of plenty of literature that studies these kinds of ...
Pburg's user avatar
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