Multi-agent contracting with countervailing incentives and limited liability

Daniel Danau () and Annalisa Vinella

No 911, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: We consider a principal who deals with two privately informed agents protected by limited liability. Their technologies are such that the fixed costs decline with the marginal costs (the types), which are correlated. Because of these technological features, agents display countervailing incentives to misrepresent type. We show that, with high liability, the first-best outcome can be effected for any type if (1) the fixed cost is non-concave in type, under the contract that yields the smallest feasible loss to agents; (2) the fixed cost is not very concave in type, under the contract that yields the maximum sustainable loss to agents. We further show that, with low liability, the first-best outcome is still implemented for a non-degenerate range of types if the fixed cost is less concave in type than some given threshold, which tightens as the liability reduces. The optimal contract entails pooling otherwise..

Keywords: Countervailing incentives; Limited liability; Correlation; Pooling (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-bec and nep-cta
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.st-andrews.ac.uk/~www_crieff/papers/dp0911.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.st-andrews.ac.uk/~www_crieff/papers/dp0911.pdf [302 Found]--> https://www.st-andrews.ac.uk/~www_crieff/papers/dp0911.pdf)

Related works:
Working Paper: Multi-agent contracting with countervailing incentives and limited liability (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:0911

Access Statistics for this paper

More papers in CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm Department of Economics, Castlecliffe, The Scores, St Andrews, KY16 9AZ. Contact information at EDIRC.
Bibliographic data for series maintained by Department of Economics, The University of St Andrews Business School ().