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Mechanism Sufficient Statistic in the Risk-Neutral Agency Problem

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Author Info
Dominique Demougin () (Université du Québec à Montréal)
Claude Fluet () (Université du Québec à Montréal)

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Abstract

Cet article analyse l'utilisation efficace de l'information dans un problème de principal agent avec risque moral et neutralité au risque. On montre que, pour un système arbitraire d'information, toute l'information pertinente d'un point de vue incitatif peut être résumée par une statistique binaire. De plus, nous montrons que ceci permet un classement complet des systèmes d'information pour les problèmes d'agence risco-neutres. Ces résultats sont obtenus sous une condition faible de convexité qui ne dépendent pas d'un ordre exogène sur l'ensemble des signaux. On montre que cette condition est plus générale que les restrictions habituelles justifiant l'approche du premier ordre.

This paper analyses the efficient use of information in an agency relationship with moral hazard, when parties are risk-neutral. We show that, given an arbitrary information system. all relevant information from a mechanism-design point of view can be summarized by a binary statistic. We then show that this allows a complete ordering of information systems for the risk-neutral agency problem. These results are obtained under a weak convexity condition which does not rely on an exogenous ordering on signal sets. The condition is shown to be more general than existing requirements for justifying the first-order approach.

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Publisher Info
Paper provided by Université du Québec à Montréal, Département des sciences économiques in its series Cahiers de recherche du Département des sciences économiques, UQAM with number 9602.

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Date of creation: Oct 1996
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Handle: RePEc:cre:uqamwp:9602

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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  1. Roland Strausz, 2004. "Buried in Paperwork: Excessive Reporting in Organizations," Discussion Papers 27, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  2. Jörg Budde, 2005. "Information in tournaments under limited liability," Bonn Econ Discussion Papers bgse21_2005, University of Bonn, Germany. [Downloadable!]
  3. Patrick W. Schmitz, 2005. "Workplace surveillance, privacy protection, and efficiency wages," Bonn Econ Discussion Papers bgse25_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  4. Alexander K. Koch & Julia Nafziger, 2007. "Job Assignments under Moral Hazard: The Peter Principle Revisited," IZA Discussion Papers 2973, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Claude Fluet, 1998. "Régulation des risques et insolvabilité: le rôle de la responsabilité pour faute en information imparfaite," Cahiers de recherche du Département des sciences économiques, UQAM 9802, Université du Québec à Montréal, Département des sciences économiques. [Downloadable!]
  6. Dominique Demougin & Claude Fluet, 1998. "Ranking of Information Systems in Agency Models: An Integral Condition," Cahiers de recherche CREFE / CREFE Working Papers 70, CREFE, Université du Québec à Montréal. [Downloadable!]
  7. Schmitz, Patrick W., 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," CEPR Discussion Papers 5145, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Dominique Demougin & Claude Fluet, 1997. "Monitoring versus Incentives: Substitutes or Complements?," Cahiers de recherche CREFE / CREFE Working Papers 47, CREFE, Université du Québec à Montréal. [Downloadable!]
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