Optimal Screening by Risk-Averse Principals
AbstractThis paper studies the effects of principal's risk aversion on principal-agent relationship under hidden information. It finds that the agent's equilibrium effort increases and approaches the efficient level as the principal's risk aversion increases and tends to infinity. Allowing for random participation by the agent, his effort can be efficient even when the principal's risk aversion is finite. For the case of common agency with random participation, it is optimal for the principals to make the agent the residual claimant on profits and the principals' net profits monotonically decrease to zero when their risk aversion tends to infinity.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.
Volume (Year): 10 (2010)
Issue (Month): 1 (March)
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Web page: http://www.degruyter.com
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- Xiangkang Yin, 2013. "Two-part tariffs set by a risk-averse monopolist," Journal of Economics, Springer, vol. 109(2), pages 175-192, June.
- Barelli, Paulo & Basov, Suren & Bugarin, Mauricio & King, Ian King, 2010.
"The Inclusiveness of Exclusion,"
Insper Working Papers
wpe_211, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
- Paulo Barelli & Suren Basov & Mauricio Bugarin & Ian King, 2012.
"The Robustness of Exclusion in Multi-dimensional Screening,"
RCER Working Papers
576, University of Rochester - Center for Economic Research (RCER).
- Paulo Barelli & Suren Basov & Mauricio Bugarin & Ian King, 2012. "The Robustness of Exclusion in Multi-dimensional Screening," RCER Working Papers 571, University of Rochester - Center for Economic Research (RCER).
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