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Abstract

We propose an agency model based on competitive markets in order to analyse an economy with several homogeneous principals and heterogeneous agents. We model the principal-agent economy as a two-sided matching game and characterise the set of stable outcomes (equilibria) of this market. In this regard we generalise the assignment game of Shapley and Shubik (1972). Unlike in the standard principal-agent theory, equilibrium payoffs of all the individuals are endogenous, equilibrium contracts are Pareto optimal, and the incremental surplus generated in a principal-agent relationship accrues to the tenant. We design a simple non-cooperative game which implements the set of stable outcomes in subgame perfect equilibrium. We also suggest policy measures in relation to efficiency and income distribution.

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Bibliographic Info

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

Volume (Year): 2 (2006)
Issue (Month): 1 (August)
Pages: 1-34

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Handle: RePEc:bpj:bejtec:v:frontiers.2:y:2006:i:1:n:1

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Find related papers by JEL classification:

• C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
• D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
• D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation

References

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Citations

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Cited by:

1. Besley, Timothy J. & Ghatak, Maitreesh, 2004. "Competition and Incentives with Motivated Agents," CEPR Discussion Papers 4641, C.E.P.R. Discussion Papers.
   
   • Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
   • Besley, Tim & Ghatak, Maitreesh, 2005. "Competition and incentives with motivated agents," Open Access publications from London School of Economics and Political Science http://eprints.lse.ac.uk/, London School of Economics and Political Science.
2. Kaniska Dam & David Pérez-Castrillo, 2003. "Equilibrium Limited Liability Contracts in a Landlord-Tenant Market," Working Papers 99, Barcelona Graduate School of Economics.
3. Maitreesh Ghatak & Alexander Karaivanov, 2011. "Contractual Structure and Endogenous Matching in Partnershipso," STICERD - Economic Organisation and Public Policy Discussion Papers Series 024, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
   
   • Ghatak, Maitreesh & Karaivanov, Alexander, 2011. "Contractual Structure and Endogenous Matching in Partnerships," CEPR Discussion Papers 8298, C.E.P.R. Discussion Papers.
4. Michael Kosfeld & Ferdinand von Siemens, 2007. "Competition, Cooperation, and Corporate Culture," IEW - Working Papers 328, Institute for Empirical Research in Economics - University of Zurich.
   
   • Michael Kosfeld & Ferdinand A. von Siemens, 2011. "Competition, cooperation, and corporate culture," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 23-43, 03.
   • Kosfeld, Michael & von Siemens, Ferdinand, 2007. "Competition, Cooperation, and Corporate Culture," IZA Discussion Papers 2927, Institute for the Study of Labor (IZA).
5. Li, Fei & Ueda, Masako, 2009. "Why do reputable agents work for safer firms?," Finance Research Letters, Elsevier, vol. 6(1), pages 2-12, March.
6. Ghatak, Maitreesh & Karaivanov, Alexander, 2013. "Contractual Structure in Agriculture with Endogenous Matching," CAGE Online Working Paper Series 119, Competitive Advantage in the Global Economy (CAGE).

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