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A Renegotiation-Proof Mechanism for a Principal-Agent Model with Moral Hazard and Adverse Selection

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  • Dominique M. Demougin

Abstract

In this article I shall analyze a principal-agent model with moral hazard and adverse selection. I show that for a large class of environments, communication has no value to the principal and that he cannot do better than to average over the different types of agents. This observation is then used to derive a renegotiation-proof mechanism.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 20 (1989)
Issue (Month): 2 (Summer)
Pages: 256-267

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Handle: RePEc:rje:randje:v:20:y:1989:i:summer:p:256-267

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Cited by:
  1. Felipe Balmaceda, 2013. "On the Optimality of One-size-fits-all Contracts: The Limited Liability Case," Working Papers 39, Facultad de Economía y Empresa, Universidad Diego Portales.
  2. Dominique Demougin & Oliver Fabel, 2006. "The Division of Ownership in New Ventures," SFB 649 Discussion Papers SFB649DP2006-047, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Laffont, Jean-Jacques & Rochet, Jean-Charles, 1998. "Regulation of a Risk Averse Firm," Games and Economic Behavior, Elsevier, vol. 25(2), pages 149-173, November.

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