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How an ineffective agent can increase his budget

Kimiko Terai and Amihai Glazer

Economics and Politics, 2021, vol. 33, issue 1, 133-147

Abstract: A principal aware that an agent exerts little effort will nevertheless fund the agent, because the principal values the output the agent produces. The agent in turn decides how hard to work by anticipating how his behavior affects the budget the principal will give him. Under some conditions, the principal gives the agent large budgets anticipating that the agent will not work hard. The corrupt environment aggravates the problem. An agent who can set the budget ameliorates the problem, though incompletely.

Date: 2021
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