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Distributions for the first-order approach to principal-agent problems

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  • Marco LiCalzi
  • Sandrine Spaeter

Abstract

The first-order approach is a technical shortcut widely used in agency problems. The best known set of sufficient conditions for its validity are due to Mirrlees and Rogerson and require that the distribution function is convex in effort and has a likelihood ratio increasing in output. Only one nontrivial example was so far known to satisfy both properties. This note provides two rich families of examples displaying both properties. Copyright Springer-Verlag Berlin Heidelberg 2003

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File URL: http://hdl.handle.net/10.1007/s00199-001-0250-y
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 21 (2003)
Issue (Month): 1 (01)
Pages: 167-173

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Handle: RePEc:spr:joecth:v:21:y:2003:i:1:p:167-173

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Related research

Keywords: Keywords and Phrases: Principal-agent problem; First-order approach; Monotone likelihood ratio; Convexity in effort.; JEL Classification Numbers: D82.;

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Cited by:
  1. Schmitt, Andre & Spaeter, Sandrine, 2005. "Improving the prevention of environmental risks with convertible bonds," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 637-657, November.
  2. Martine Quinzii & Michael Magill, 1900. "Normative Properties Of Stock Market Equilibrium With Moral Hazard," Working Papers 82, University of California, Davis, Department of Economics.
  3. Dionne, G. & Spaeter, S., 1998. "Environmental Risk and Extended Liability: the Case of Green Technologies," Ecole des Hautes Etudes Commerciales de Montreal- 98-12, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
  4. Corrado Benassi, 2011. "A Note on Convex Transformations and the First Order Approach," Working Paper Series 06_11, The Rimini Centre for Economic Analysis.
  5. Patrice Loisel, 2013. "Can CDFC and MLRP Conditions Be Both Satisfied for a Given Distribution?," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 7(3), pages 135-145, November.
  6. Michael Magill & Martine Quinzii, 2006. "Common Shocks and Relative Compensation," Annals of Finance, Springer, vol. 2(4), pages 407-420, October.
  7. James Mirrlees & Roberto Raimondo, 2013. "Strategies in the principal-agent model," Economic Theory, Springer, vol. 53(3), pages 605-656, August.
  8. Arnold Chassagnon, 2007. "Regular moral hazard economies," Working Papers halshs-00588317, HAL.
  9. Fagart, Marie-Cécile & Fluet, Claude, 2013. "The first-order approach when the cost of effort is money," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 7-16.
  10. Kadan, Ohad & Swinkels, Jeroen M., 2013. "Minimum payments and induced effort in moral hazard problems," Games and Economic Behavior, Elsevier, vol. 82(C), pages 468-489.
  11. André SCHMITT & Sandrine SPAETER, 2002. "Improving the Prevention of Environmental Risks with Convertible Bonds," Working Papers of BETA 2002-14, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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