 Information space conditions for the first-order approach in agency problemsJin Yong Jung and Son Ku Kim Journal of Economic Theory, 2015, vol. 160, issue C, 243-279 Abstract: When the principal is risk-neutral, the optimal contract for the agent which is derived using the first-order approach depends on the signals of the agent's effort only through the information variable (i.e., the likelihood ratio of the signals). By analyzing the principal-agent problem based on the information variable rather than the signals, we derive three new sets of conditions under which the first-order approach is justified. We show not only that they are more general than any sets of conditions in the existing literature, including Conlon's conditions in the multi-signal case and Jewitt's conditions in the one-signal case but also that they do not require the monotone likelihood ratio property (MLRP) for the density function of the signals. We also derive a set of conditions which applies when the principal is risk-averse and show that those conditions are more general than Conlon's corresponding conditions. Keywords: The principal-agent model; The first-order approach; The likelihood ratio variable (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:160:y:2015:i:c:p:243-279 DOI: 10.1016/j.jet.2015.09.003 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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