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Moral hazard in welfare economics: on the advantage of Planner's advices to manage employees' actions

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  • Thibaut Mastrolia

    (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we study moral hazard problems in contract theory by adding an exogenous Planner to manage the actions of Agents hired by a Principal. We provide conditions ensuring that Pareto optima exist for the Agents using the scalarization method associated with the multi-objective optimization problem and we solve the problem of the Principal by finding optimal remunerations given to the Agents. We illustrate our study with a linear-quadratic model by comparing the results obtained when we add a Planner in the Principal/multi-Agents problem with the results obtained in the classical second-best case. More particularly in this example, we give necessary and sufficient conditions ensuring that Pareto optima are Nash equilibria and we prove that the Principal takes the benefit of the action of the Planner in some cases.

Suggested Citation

  • Thibaut Mastrolia, 2017. "Moral hazard in welfare economics: on the advantage of Planner's advices to manage employees' actions," Working Papers hal-01504473, HAL.
    • Handle: RePEc:hal:wpaper:hal-01504473
    Note: View the original document on HAL open archive server: https://hal.science/hal-01504473
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    References listed on IDEAS

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    1. Jakv{s}a Cvitani'c & Dylan Possamai & Nizar Touzi, 2015. "Dynamic programming approach to principal-agent problems," Papers 1510.07111, arXiv.org, revised Jan 2017.
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    6. Daron Acemoglu & Alp Simsek, 2010. "Moral Hazard and Efficiency in General Equilibrium with Anonymous Trading," Levine's Working Paper Archive 661465000000000232, David K. Levine.
    7. Panaccione Luca, 2007. "Pareto Optima and Competitive Equilibria with Moral Hazard and Financial Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-21, October.
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    Cited by:

    1. Thibaut Mastrolia & Zhenjie Ren, 2017. "Principal-Agent Problem with Common Agency without Communication," Papers 1706.02936, arXiv.org, revised Jan 2018.
    2. Romuald Elie & Thibaut Mastrolia & Dylan Possamaï, 2019. "A Tale of a Principal and Many, Many Agents," Mathematics of Operations Research, INFORMS, vol. 44(2), pages 440-467, May.
    3. Thibaut Mastrolia & Zhenjie Ren, 2018. "Principal-Agent Problem with Common Agency without Communication," Working Papers hal-01534611, HAL.

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    More about this item

    Keywords

    Pareto efficiency; multi-objective optimization problems; BSDE; Moral hazard; Nash equilibrium;
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