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The Principal-Agent Relationship: Two Distributions Satisfying MLRP and CDFC

Listed author(s):
  • Spaeter, S.
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    The first-order approach, which consists in replacing the incentive compatible constraint by the agent's first order condition, is widely used in agency problems where the principal cannot observe the level of effort chosen by the agent. This substitution is valid with the Monotone Likelihood Ratio Property and the Convex Distribution Function Condition. Unfortunately, revenue distributions seldom present both properties. In this note, we provide two examples of revenue distributions that satisfy MLRP and CDFC. We also give their counterpart in terms of loss distribution.

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    Paper provided by Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques. in its series Ecole des Hautes Etudes Commerciales de Montreal- with number 98-11.

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    Length: 24 pages
    Date of creation: 1998
    Handle: RePEc:fth:etcori:98-11
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    Canada; ECOLE DES HAUTES ETUDES COMMERCIALES(H.E.C.),3000, chemin de la Cote-Sainte-Catherine. Montreal (Quebec) Canada H3T 2A7.

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