Why an Informed Principal May Leave Rents to an Agent
AbstractThis paper characterizes incentive contracts for the situation where a principal is privately informed about the technology governing an agency relationship. In contrast to a standard principal-agent relationship, it is shown that a principal who values effort highly will choose to induce effort by paying a high base wage and low bonus payments. Moreover, the equilibrium contract has the principal transferring rents to the agent even though contracting possibilities are unrestricted and both principal and agent are risk neutral. Consequently, the informed-principal framework is shown to provide a rational for the payment of efficiency wages. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 35 (1994)
Issue (Month): 4 (November)
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- Martimort, David & Poudou, Jean-Christophe & Sand-Zantman, Wilfried, 2010.
"Contracting for an Innovation under Bilateral Asymmetric Information,"
Open Access publications from University of Toulouse 1 Capitole
http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- Martimort, D. & Poudou, J.-C. & Sand-Zantman, W., 2006. "Contracting for an Innovation under Bilateral Asymmetric Information," Cahiers du LASER (LASER Working Papers) 2006.19, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
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- Thomas Troeger & Tymofiy Mylovanov, 2010. "Optimal Auction Design and Irrelevance of Privacy of Information," 2010 Meeting Papers 1039, Society for Economic Dynamics.
- Rolf Tisljar, 2002. "Mechanism Design by an Informed Principal - Pure-Strategy Equilibria for a Common Value Model," Bonn Econ Discussion Papers bgse21_2002, University of Bonn, Germany.
- Grigorieva, Elena & Herings, P. Jean-Jacques & Müller, Rudolf & Vermeulen, Dries, 2006. "The family of c-bisection auctions: efficiency and running time," Research Memoranda 019, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- Mylovanov, Tymofiy & Tröger, Thomas, 2013. "Mechanism Design by an Informed Principal: The Quasi-Linear Private-Values Case," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 437, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Vahey, Shaun P., 2004. "Signalling ability to pay and rent sharing dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2327-2339, October.
- Thomas Tröger & Tymofiy Mylovanov, 2008. "Optimal Auction Design and Irrelevance of Private Information," Bonn Econ Discussion Papers bgse21_2008, University of Bonn, Germany.
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