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The Principal-Agent Matching Market

Author

Listed:
  • Dam Kaniska

    () (Center for Operations Research and Econometrics, Universite Catholique de Louvain, Belgium and Centro de Investigacion y Docencia Economicas, Mexico)

  • Perez-Castrillo David

    () (Universitat Autonoma de Barcelona, Spain)

Abstract

We propose an agency model based on competitive markets in order to analyse an economy with several homogeneous principals and heterogeneous agents. We model the principal-agent economy as a two-sided matching game and characterise the set of stable outcomes (equilibria) of this market. In this regard we generalise the assignment game of Shapley and Shubik (1972). Unlike in the standard principal-agent theory, equilibrium payoffs of all the individuals are endogenous, equilibrium contracts are Pareto optimal, and the incremental surplus generated in a principal-agent relationship accrues to the tenant. We design a simple non-cooperative game which implements the set of stable outcomes in subgame perfect equilibrium. We also suggest policy measures in relation to efficiency and income distribution.

Suggested Citation

  • Dam Kaniska & Perez-Castrillo David, 2006. "The Principal-Agent Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-34, August.
  • Handle: RePEc:bpj:bejtec:v:frontiers.2:y:2006:i:1:n:1
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Marco A. Marini & Paolo Polidori & Désirée Teobaldelli & Davide Ticchi, 2018. "Optimal Incentives in a Principal–Agent Model with Endogenous Technology," Games, MDPI, Open Access Journal, vol. 9(1), pages 1-13, February.
    2. Han, Seungjin, 2015. "Robust competitive auctions," Economics Letters, Elsevier, vol. 136(C), pages 207-210.
    3. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    4. Kaniska Dam, 2009. "Job Matching, Competition and Managerial Incentives," Working papers DTE 460, CIDE, División de Economía.
    5. Ghatak, Maitreesh & Karaivanov, Alexander, 2011. "Contractual Structure and Endogenous Matching in Partnerships," CEPR Discussion Papers 8298, C.E.P.R. Discussion Papers.
    6. Ghatak, Maitreesh & Karaivanov, Alexander, 2014. "Contractual structure in agriculture with endogenous matching," Journal of Development Economics, Elsevier, vol. 110(C), pages 239-249.
    7. Kaniska Dam, 2007. "A Two-Sided Matching Model of Monitored Finance," Working papers DTE 383, CIDE, División de Economía.
    8. Kaniska Dam, 2009. "A General Equilibrium Analysis of the Credit Market," Working papers DTE 461, CIDE, División de Economía.
    9. Michael Kosfeld & Ferdinand A. von Siemens, 2011. "Competition, cooperation, and corporate culture," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 23-43, March.
    10. Serfes, Konstantinos, 2013. "A Price Theory of Vertical and Lateral Integration under Two-Sided Productivity Heterogeneity," School of Economics Working Paper Series 2013-6, LeBow College of Business, Drexel University, revised 06 Mar 2014.
    11. Guo, Chiquan & Wang, Yong J. & Metcalf, Ashley, 2014. "How to calibrate conventional market-oriented organizational culture in 21st century production-centered firms? A customer relationship perspective," International Journal of Production Economics, Elsevier, vol. 156(C), pages 235-245.
    12. Kaniska Dam & David Pérez-Castrillo, 2003. "Equilibrium Limited Liability Contracts in a Landlord-Tenant Market," Working Papers 99, Barcelona Graduate School of Economics.
    13. Macho-Stadler, Inés & Pérez-Castrillo, David & Porteiro, Nicolás, 2014. "Coexistence of long-term and short-term contracts," Games and Economic Behavior, Elsevier, vol. 86(C), pages 145-164.
    14. Han Seungjin, 2016. "Sellers’ Implicit Collusion in Directed Search Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 711-738, June.
    15. Ulf von Lilienfeld-Toal & Dilip Mookherjee, 2010. "The Political Economy of Debt Bondage," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 44-84, August.
    16. repec:eee:touman:v:52:y:2016:i:c:p:82-95 is not listed on IDEAS
    17. Roger, Guillaume, 2016. "Participation in moral hazard problems," Games and Economic Behavior, Elsevier, vol. 95(C), pages 10-24.
    18. Norovsambuu Tumennasan, 2014. "Moral hazard and stability," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(3), pages 659-682, October.
    19. Li, Fei & Ueda, Masako, 2009. "Why do reputable agents work for safer firms?," Finance Research Letters, Elsevier, vol. 6(1), pages 2-12, March.
    20. repec:eee:touman:v:36:y:2013:i:c:p:602-612 is not listed on IDEAS
    21. Khoshyaran, M., 2004. "The new capitalists: a structural change from the stock market economy to the free market economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 14-18.
    22. Hong, Suting, 2013. "Competition, syndication, and entry in the venture capital market," Working Papers 13-49, Federal Reserve Bank of Philadelphia.
    23. Ahmet Alkan & Alparslan Tuncay, 2014. "Pairing Games and Markets," Working Papers 2014.48, Fondazione Eni Enrico Mattei.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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