Useless Prevention vs. Costly Remediation
I model the dynamic agency relationship underlying prevention. In each period, a principal can transfer resources to an agent that has private information about a problem, which the agent can direct to solving the problem or divert into rents. Problems are persistent and rectifiable: they randomly generate observable disasters until enough resources have been committed to solving them. I characterise the principal's equilibrium trade-off between (a) preventing disasters while squandering transfers in informational rents to agents facing trivial problems and (b) limiting transfers and remediating costly disasters that eliminate agents informational advantage and prove the need for action.
|Date of creation:||Jul 2012|
|Date of revision:||Feb 2015|
|Contact details of provider:|| Postal: Waterloo, Ontario, N2L 3G1|
Phone: (519) 888-4567 ext 33695
Fax: (519) 725-0530
Web page: http://economics.uwaterloo.ca/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Arantxa Jarque, 2008.
"Repeated moral hazard with effort persistence,"
08-04, Federal Reserve Bank of Richmond.
- Timothy Besley & Anne Case, 1992.
"Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition,"
NBER Working Papers
4041, National Bureau of Economic Research, Inc.
- Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
- Polborn, Mattias K., 1998. "Mandatory insurance and the judgment-proof problem," International Review of Law and Economics, Elsevier, vol. 18(2), pages 141-146, June.
- Ana Fernandes & Christopher Phelan, 1999.
"A recursive formulation for repeated agency with history dependence,"
259, Federal Reserve Bank of Minneapolis.
- Fernandes, Ana & Phelan, Christopher, 2000. "A Recursive Formulation for Repeated Agency with History Dependence," Journal of Economic Theory, Elsevier, vol. 91(2), pages 223-247, April.
- R. Coats & Gökhan Karahan & Robert Tollison, 2006. "Terrorism and pork-barrel spending," Public Choice, Springer, vol. 128(1), pages 275-287, July.
- Olivier Cadot & Lars-Hendrik Röller & Andreas Stephan, 2002.
"Contribution to Productivity or Pork Barrel? The Two Faces of Infrastructure Investment,"
CIG Working Papers
FS IV 02-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Cadot, Olivier & Roller, Lars-Hendrik & Stephan, Andreas, 2006. "Contribution to productivity or pork barrel? The two faces of infrastructure investment," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1133-1153, August.
- Olivier Cadot & Lars-Hendrik Röller & Andreas Stephan, 2004. "Contribution to Productivity or Pork Barrel?: The Two Faces of Infrastructure Investment," Discussion Papers of DIW Berlin 458, DIW Berlin, German Institute for Economic Research.
- Bruno Biais & Thomas Mariotti & Jean-Charles Rochet & Stéphane Villeneuve, 2010.
"Large risks, limited liability, and dynamic moral hazard,"
- Bruno Biais & Thomas Mariotti & Jean-Charles Rochet & StÈphane Villeneuve, 2010. "Large Risks, Limited Liability, and Dynamic Moral Hazard," Econometrica, Econometric Society, vol. 78(1), pages 73-118, 01.
- Biais, Bruno & Mariotti, Thomas & Rochet, Jean-Charles & Villeneuve, Stéphane, 2007. "Large Risks, Limited Liability and Dynamic Moral Hazard," IDEI Working Papers 472, Institut d'Économie Industrielle (IDEI), Toulouse, revised Sep 2009.
- Banks, Jeffrey S. & Sundaram, Rangarajan K., 1998. "Optimal Retention in Agency Problems," Journal of Economic Theory, Elsevier, vol. 82(2), pages 293-323, October.
- Thomas A. Garrett & Russell S. Sobel, 2002.
"The political economy of FEMA disaster payments,"
2002-012, Federal Reserve Bank of St. Louis.
- John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
- Moritz Meyer-ter-Vehn & Simon Board, 2009.
"Reputation for Quality,"
2009 Meeting Papers
160, Society for Economic Dynamics.
- Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 531-568, June.
- Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
When requesting a correction, please mention this item's handle: RePEc:wat:wpaper:1207. 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: (Pat Gruber)
If references are entirely missing, you can add them using this form.