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Optimal Screening by Risk-Averse Principals

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Author Info

  • Basov Suren

    ()
    (La Trobe University)

  • Yin Xiangkang

    ()
    (La Trobe University)

Abstract

This 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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File URL: http://www.degruyter.com/view/j/bejte.2010.10.1/bejte.2010.10.1.1590/bejte.2010.10.1.1590.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 10 (2010)
Issue (Month): 1 (March)
Pages: 1-25

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Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:8

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Cited by:
  1. Xiangkang Yin, 2013. "Two-part tariffs set by a risk-averse monopolist," Journal of Economics, Springer, vol. 109(2), pages 175-192, June.
  2. 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.
  3. 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).

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