Skip to main content
7 votes
Accepted

First paper to introduce the "principal-agent problem"

The term principal-agent problem is due to Ross (1973) (per Stiglitz, 1989). Other early contributions to this literature include Mirrlees (1974, 1976) and Stiglitz 1974, 1975).
Ali's user avatar
  • 862
5 votes

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

I found "Contract Theory" by Patrick Bolton and Mathias Dewatripont to be a very nice and thorough book. It, however, might be too advanced, although you can skip the formalism and just read the ...
Bayesian's user avatar
  • 5,291
5 votes

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

In my PhD program everyone was using The Theory of Incentives: The Principal-Agent Model by Jean-Jacques Laffont and David Martimort. It offers a formal and relatively complete treatment without being ...
Oliv's user avatar
  • 3,242
5 votes

General mathematical model of incomplete contracts?

Just a model that can be used to state how (in)complete a particular contract is, whatever the reason. I remember a debate at the end of the 90's on Incomplete Contracts: Where do We Stand? by Jean ...
emeryville's user avatar
  • 6,975
5 votes

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

I'm not sure what exactly you're looking for, but here are some wild guesses: Bolton and Dewatripont (2005) Contract Theory, MIT Press. [Probably Chapters 5 and 6] Maskin and Tirole (1990) "The ...
Herr K.'s user avatar
  • 15.4k
5 votes
Accepted

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

I think it is. Intelligent economist site states: The Principal Agent Problem occurs when one person (the agent) is allowed to make decisions on behalf of another person (the principal). In this ...
WilliamT's user avatar
  • 1,847
4 votes
Accepted

Integrate a sufficient statistic

The fact that $$ \frac{g_{a_i}(y,a)}{g(y,a)}, $$ is the same for all $y$ for which $T_i(y) = T_i$ implies that the fraction can be written as a function of the value of $T_i(y)$ and $a$ alone. So ...
tdm's user avatar
  • 12.4k
4 votes
Accepted

Principal-Agent Problem with Two Agents

While it's not explicitly mentioned in the question, it seems safe to assume that the manager gets to observe separately the outcome of each worker, i.e. the value of $v_i$ for $i=1,2$. If this is the ...
Herr K.'s user avatar
  • 15.4k
4 votes
Accepted

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

It is true that when both principal and agent are risk neutral, the first best can be obtained despite asymmetric information. You should refer to a textbook, such as MWG (ch.14), for the technical ...
Herr K.'s user avatar
  • 15.4k
4 votes

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

Contracting with an informed principal is not so easy because the agent can learn about the principal's type from the kind of contract offered. This introduces signaling, which can quickly get messy. ...
Bayesian's user avatar
  • 5,291
3 votes
Accepted

First order conditions in a Moral Hazard problem

Notice that MWG choose a wage function $w(\pi)$ to maximize profit, not a wage level $w$. As footnote 6 on p.481 of MWG says: The first-order condition for $w(\pi)$ is derived by taking the ...
Herr K.'s user avatar
  • 15.4k
3 votes
Accepted

Question on uncertainity

We are given that $u$ is increasing and concave, and $u(0) = 0$. This implies that $\dfrac{u(t)}{t}$ is decreasing in $t$, and also, $\dfrac{u(t)}{t} > u'(t)$ for all $t$. Nicole's maximization ...
Amit's user avatar
  • 8,966
3 votes
Accepted

locating specific model from organizational economics

This looks like a contest. There is a large economic literature on contests. Have a look at this survey by Corchón and Serena. Often these papers use a Tullock contest success function or model the ...
Bayesian's user avatar
  • 5,291
2 votes

Integrate a sufficient statistic

I add to the great answer of tdm some specifications about the term for almost all, because it is very important in mathematical analysis and in probability theory, and it is very likely to find it in ...
BakerStreet's user avatar
  • 4,047
2 votes

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

"The Economics of Contracts" by Bernard Salanié is nice and concise. Like the Bolton and Dewatripont book suggested by Bayesian (and most other books on this topic) it is pitched at a graduate level ...
Ubiquitous's user avatar
2 votes

difference between screening game and moral hazard game

Moral hazard models feature agents' hidden actions (or these actions are not contractible). For example, a manager's contract cannot determine a wage contingent on the manager's effort, only ...
Bayesian's user avatar
  • 5,291
2 votes
Accepted

Binding constraints at second-best optimum

I think its not a complex issue: a) You need to keep the high type agent from pretending to be the ow type agent, so you give him an extra compensation from showing his high type. But this nice deal ...
Fix.B.'s user avatar
  • 2,668
2 votes
Accepted

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

In direct mechanism agents directly report their preferences (preferences are observable). In indirect mechanism agents don’t report their preferences directly. Preferences can be observed only ...
1muflon1's user avatar
  • 56.9k
2 votes

Relation between incomplete contracting and the principal agent problem?

Not all principal-agent problems are the result of incomplete contracts, no. In fact, in most principal-agent problems, complete contracts are assumed. An incomplete contract is one that cannot be ...
NickCHK's user avatar
  • 636
1 vote

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

From Bolton and Dewatripont Contract Theory (2005, p.135): "In the absence of risk aversion on the part of the agent and no wealth constraints, the first best can be achieved by letting the agent "...
Hal_Incandenza's user avatar
1 vote

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

"Steep incentives schemes" are synonymous with "high-powered incentives". A steep incentive scheme is thus one in which there is a large or high-powered performance incentive. This can take either the ...
corran_horn's user avatar
1 vote

What does commitment in adverse selection mean?

Think about an auction, where the designer is selling good and trying to sell it to the person that values it the most while collecting as much revenue as possible. A direct mechanism means that the ...
Regio's user avatar
  • 4,188
1 vote

What does commitment in adverse selection mean?

Commitment here is with respect to the direct mechanism that implements the indirect mechanism. Let $M = \{S,(q,t)\}$ be an indirect mechanism. By the revelation principal, there exists a direct ...
Walrasian Auctioneer's user avatar

Only top scored, non community-wiki answers of a minimum length are eligible