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Long-Sighted Principal and Myopic Agents

Author

Listed:
  • Gabrielle Demange

    (DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Laroque Guy

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

Abstract

We consider a long-lived principal, who can accumulate capital, and faces a sequence of myopic agents. For instance, a farsighted manager floats the shares of his firm on a myopic stock market, or a social security institution must propose contracts that are acceptable by the current active population. In these circumstances, we study the shape of the investment decision, the dynamics of accumulation, and the long-run steady-state. In particular, we characterize situations where the short horizons of the agents have a dramatic effect and lead to the closure of the firm or the demise of the social security system.

Suggested Citation

  • Gabrielle Demange & Laroque Guy, 1998. "Long-Sighted Principal and Myopic Agents," Post-Print halshs-00670909, HAL.
    • Handle: RePEc:hal:journl:halshs-00670909
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    Cited by:

    1. Kjell Hausken, 2019. "Principal–Agent Theory, Game Theory, and the Precautionary Principle," Decision Analysis, INFORMS, vol. 16(2), pages 105-127, June.

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