IDEAS home Printed from https://ideas.repec.org/p/rim/rimwps/06_11.html
   My bibliography  Save this paper

A Note on Convex Transformations and the First Order Approach

Author

Listed:
  • Corrado Benassi

    () (Dipartimento di Scienze Economiche, Alma Mater Studiorum - Università di Bologna; The Rimini Centre for Economic Analysis)

Abstract

The first order approach to solving the standard one-dimensional principal-agent model is conditional upon the relevant stochastic production function obeying two noteworthy restrictions: that the Likelihood Ratio be monotonically increasing in output, and that the distribution function be convex in effort. It is usually claimed that such conditions are very restrictive, as very few of the standard probability distributions satisfy both properties. The purpose of this note is to show that this lack of generality should not be seen as a problem, since some simple convexifying transformations are available that enable one to work with proper distributions with the required properties.

Suggested Citation

  • Corrado Benassi, 2011. "A Note on Convex Transformations and the First Order Approach," Working Paper series 06_11, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:06_11
    as

    Download full text from publisher

    File URL: http://www.rcea.org/RePEc/pdf/wp06_11.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Marco LiCalzi & Sandrine Spaeter, 2003. "Distributions for the first-order approach to principal-agent problems," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(1), pages 167-173, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Patrice Loisel, 2013. "Can CDFC and MLRP Conditions Be Both Satisfied for a Given Distribution?," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 7(3), pages 135-145, November.

    More about this item

    Keywords

    Principal agent problem; first order approach;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:rim:rimwps:06_11. 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: (Marco Savioli). General contact details of provider: http://edirc.repec.org/data/rcfeait.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.