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Asymmetric awareness and heterogeneous agents

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  • Antoine Dubus

Abstract

We consider a principal-agent model with moral-hazard and asymmetric awareness and show how the heterogeneity of agents on their aversion to effort affects contract design. We discuss the optimal contract adopted when a principal is aware of all the impacts of an agent’s action, while agents ignore some of them. When a principal faces two types of agents, where one type is more effort-averse than the other, the equilibrium contract is shaped by agent proportions: it pools the agents, separates them, or excludes the more effort-averse agents from the contract. When efforts are observable, all the agents remain unaware, while when efforts are hidden, a principal increases the awareness of the agents to a level commensurate with the nature of the contract. JEL Codes – D82; D83; D86

Suggested Citation

  • Antoine Dubus, 2020. "Asymmetric awareness and heterogeneous agents," Rationality and Society, , vol. 32(4), pages 461-484, November.
    • Handle: RePEc:sae:ratsoc:v:32:y:2020:i:4:p:461-484
    DOI: 10.1177/1043463120963403
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    References listed on IDEAS

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    More about this item

    Keywords

    Economics of contract: theory; unawareness; asymmetric; private information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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