Useless Prevention vs. Costly Remediation

Jean Guillaume Forand

No 1207, Working Papers from University of Waterloo, Department of Economics

Abstract: 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.

JEL-codes: C73 D72 H10 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-07, Revised 2015-02
New Economics Papers: this item is included in nep-cta and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://uwaterloo.ca/economics/sites/ca.economics/ ... diationqjpsfinal.pdf (application/pdf)

Related works:
Journal Article: Useless Prevention vs. Costly Remediation (2015)
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:wat:wpaper:1207

Access Statistics for this paper

More papers in Working Papers from University of Waterloo, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sherri Anne Arsenault ().