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A reformulation of the maxmin expected utility model with application to agency theory

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  • Karni, Edi

Abstract

Invoking the parameterized distribution formulation of agency theory, the paper develops axiomatic foundations of the principal's and agent's choice behaviors that are representable by the maximization of the minimum expected utility over action-dependent sets of priors. In the context of this model, the paper also discusses some implications of ambiguity aversion for the design of optimal incentive schemes.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 45 (2009)
Issue (Month): 1-2 (January)
Pages: 97-112

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Handle: RePEc:eee:mateco:v:45:y:2009:i:1-2:p:97-112

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Maxmin expected utility Principal-agent theory Moral hazard;

References

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  1. Dreze, Jacques H. & Rustichini, Aldo, 1999. "Moral hazard and conditional preferences," Journal of Mathematical Economics, Elsevier, vol. 31(2), pages 159-181, March.
  2. F J Anscombe & R J Aumann, 2000. "A Definition of Subjective Probability," Levine's Working Paper Archive 7591, David K. Levine.
  3. Rigotti, L., 1998. "Imprecise Beliefs in a Principal Agent Model," Discussion Paper 1998-128, Tilburg University, Center for Economic Research.
  4. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  5. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
  6. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
  7. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
  8. Edi Karni, 2005. "Subjective Expected Utility Theory without States of the World," Economics Working Paper Archive 523, The Johns Hopkins University,Department of Economics.
  9. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  10. Sujoy Mukerji, 2002. "Ambiguity Aversion and Cost-Plus Procurement Contracts," Economics Series Working Papers 112, University of Oxford, Department of Economics.
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Cited by:
  1. Philipp Weinschenk, 2010. "Moral Hazard and Ambiguity," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_39, Max Planck Institute for Research on Collective Goods.

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