IDEAS home Printed from https://ideas.repec.org/a/oup/restud/v79y2012i3p1151-1174.html
   My bibliography  Save this article

Incentives for Unaware Agents

Author

Listed:
  • Ernst-Ludwig Von Thadden
  • Xiaojian Zhao

Abstract

The paper introduces the problem of unawareness into principal--agent theory and discusses optimal incentive contracts when the agent may be unaware of her action space. Depending on the agent's default behaviour, it can be optimal for the principal to propose an incomplete contract (that keeps the agent unaware) or a complete contract. The key trade-off is that of enlarging the agent's choice set versus adding costly incentive constraints. If agents differ in their unawareness, optimal contracts show a self-reinforcing pattern: if there are few unaware agents in the economy optimal contracts promote awareness, if unawareness is wide spread optimal contracts shroud the contracting environment, thus keeping the agent unaware. Copyright , Oxford University Press.

Suggested Citation

  • Ernst-Ludwig Von Thadden & Xiaojian Zhao, 2012. "Incentives for Unaware Agents," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1151-1174.
  • Handle: RePEc:oup:restud:v:79:y:2012:i:3:p:1151-1174
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/restud/rdr050
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “Incentives for Unaware Agents,” E.L. von Thadden & X. Zhao (2012)
      by afinetheorem in A Fine Theorem on 2013-04-12 01:29:52

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert Dur & Heiner Schmittdiel, 2013. "Paid to Quit," Tinbergen Institute Discussion Papers 13-174/VII, Tinbergen Institute, revised 07 Dec 2015.
    2. repec:kap:theord:v:83:y:2017:i:2:d:10.1007_s11238-017-9594-z is not listed on IDEAS
    3. Zhao, Xiaojian, 2011. "Framing contingencies in contracts," Mathematical Social Sciences, Elsevier, vol. 61(1), pages 31-40, January.
    4. Ying-Ju Chen & Xiaojian Zhao, 2013. "Solution Concepts of Principal-Agent Models with Unawareness of Actions," Games, MDPI, Open Access Journal, vol. 4(3), pages 1-24, August.
    5. Nicola Pavoni & Sarah Auster, 2016. "Optimal Delegation, Unawareness, and Financial Intermediation," 2016 Meeting Papers 1106, Society for Economic Dynamics.
    6. Li, Sanxi & Peitz, Martin & Zhao, Xiaojian, 2016. "Information disclosure and consumer awareness," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 209-230.
    7. Zhengqing Gui & Yangguang Huang & Xiaojian Zhao, 2018. "Whom to Educate? Financial Fraud and Investor Awareness," HKUST IEMS Working Paper Series 2018-52, HKUST Institute for Emerging Market Studies, revised Jan 2018.
    8. Inés Macho-Stadler & David Pérez-Castrillo, 2016. "Moral Hazard: Base Models and Two Extensions," Working Papers 883, Barcelona Graduate School of Economics.
    9. Schumacher, Heiner & Thysen, Heidi, 2017. "Equilibrium Contracts and Boundedly Rational Expectations," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168085, Verein für Socialpolitik / German Economic Association.
    10. Spyros Galanis, 2011. "Syntactic foundations for unawareness of theorems," Theory and Decision, Springer, vol. 71(4), pages 593-614, October.
    11. Wenjun Ma & Burkhard C. Schipper, 2017. "Does exposure to unawareness affect risk preferences? A preliminary result," Theory and Decision, Springer, vol. 83(2), pages 245-257, August.
    12. Ernst-Ludwig Thadden & Xiaojian Zhao, 2014. "Multi-task agency with unawareness," Theory and Decision, Springer, vol. 77(2), pages 197-222, August.
    13. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
    14. Matteo Foschi, 2016. "Contracting with Type-Dependent Naïveté," Discussion Papers in Economics 16/03, Department of Economics, University of Leicester.
    15. Sarah Auster, 2012. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2012/23, European University Institute.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:79:y:2012:i:3:p:1151-1174. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.