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Optimal screening by risk-averse principals

journal contribution
posted on 2010-01-01, 00:00 authored by S Basov, Xiangkang YinXiangkang Yin
This paper studies the effects of principal's risk aversion on principal-agent relationship under hidden information. It finds that the agent's equilibrium effort increases and approaches the efficient level as the principal's risk aversion increases and tends to infinity. Allowing for random participation by the agent, his effort can be efficient even when the principal's risk aversion is finite. For the case of common agency with random participation, it is optimal for the principals to make the agent the residual claimant on profits and the principals' net profits monotonically decrease to zero when their risk aversion tends to infinity.

History

Journal

B.E. journal of theoretical economics

Volume

10

Article number

8

Pagination

1-23

Location

Berlin, Germany

eISSN

1935-1704

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2011, Walter de Gruyter GmbH & Co. KG, Berlin/Boston

Issue

1

Publisher

De Gruyter

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