Risky Allocations from a Risk-Neutral Informed Principal
We study a model of informed principal with private values where the principal is risk neutral and the agent is risk averse. We show that the principal, regardless of her type, gains by not revealing her type to the agent through the contract offer. The equilibrium allocation transfers some ex-ante risk from one type of agent to the other. Despite the increase in the principal`s surplus, allocative efficiency does not necessarily improve.
|Date of creation:||01 Apr 2005|
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- Michela Cella, 2006.
"Informed Principal with Correlation,"
Economics Series Working Papers
261, University of Oxford, Department of Economics.
- Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
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