Contracting and search with heterogeneous principals and agents

Jan Starmans

Journal of Economic Theory, 2024, vol. 217, issue C

Abstract: This paper incorporates a risk-neutral principal-agent problem into a random search model to study contracting and search in general equilibrium. I introduce heterogeneity in principals' and agents' production technologies in terms of the distribution of output across states of nature. Under optimal contracting, this heterogeneity can give rise to complementarity in contracting between specific principal and agent types. In contrast to complementarity in production, complementarity in contracting affects only the division of the surplus but not its size and can induce principals to engage in overly intense search before forming a match. I show that a reduction in search frictions and contractual innovations can induce principals to engage in overly intense search.

Keywords: Moral hazard; Contract design; Search; Heterogeneous production technologies (search for similar items in EconPapers)
JEL-codes: D83 D86 G32 J41 J63 J64 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:217:y:2024:i:c:s0022053123001576

DOI: 10.1016/j.jet.2023.105761

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