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Common Agency with Risk-Averse Agent

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  • Semenov, Aggey

Abstract

I consider a common agency model under adverse selection with a risk averse agent. Contracting takes place ex ante when all players have symmetric, although incomplete, information. The coordination problem between principals leads to more distortion in the optimal policy from the first best compared to the case of risk neutrality. In contrast with the risk neutral case the principals are unable to screen completely the agent's preferences if she/he is sufficiently risk averse. However, if the agent is almost risk neutral the output is separating, but the transfer schedules keep track of asymmetric contractual externality. When risk aversion goes to zero the transfers become truthful as in the complete information case.

Suggested Citation

  • Semenov, Aggey, 2006. "Common Agency with Risk-Averse Agent," MPRA Paper 6991, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6991
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    References listed on IDEAS

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    1. Martimort, David & Semenov, Aggey, 2008. "Ideological uncertainty and lobbying competition," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 456-481, April.
    2. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 1-31.
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    5. Martimort, David, 1996. "The multiprincipal nature of government," European Economic Review, Elsevier, vol. 40(3-5), pages 673-685, April.
    6. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
    7. Laffont, Jean-Jacques & Rochet, Jean-Charles, 1998. "Regulation of a Risk Averse Firm," Games and Economic Behavior, Elsevier, vol. 25(2), pages 149-173, November.
    8. David P. Baron & David Besanko, 1987. "Monitoring, Moral Hazard, Asymmetric Information, and Risk Sharing in Procurement Contracting," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 509-532, Winter.
    9. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    10. Martimort, David & Semenov, Aggey, 2007. "The pluralistic view of politics: Asymmetric lobbyists, ideological uncertainty and political entry," Economics Letters, Elsevier, vol. 97(2), pages 155-161, November.
    11. Martimort, David & Stole, Lars, 2009. "Selecting equilibria in common agency games," Journal of Economic Theory, Elsevier, vol. 144(2), pages 604-634, March.
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    Cited by:

    1. Graham Mallard, 2014. "Static Common Agency And Political Influence: An Evaluative Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 17-35, February.

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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