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Contracting with a naïve time-inconsistent agent: To exploit or not to exploit?

Murat Yılmaz

Mathematical Social Sciences, 2015, vol. 77, issue C, 46-51

Abstract: In a repeated principal–agent model with moral hazard, in which the agent has βδ-preferences, we analyze the case where the agent is naïve in the sense that he is not fully aware of his inconsistent discounting. We consider the possibility of principal manipulating the naïveté of the agent. Surprisingly, when the principal wants to implement the high effort, there are no gains to the principal from the naïveté of the agent and the principal does not choose to deceive the agent. The principal’s maximum utility is the same from a sophisticated agent and from a naïve agent.

Date: 2015
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DOI: 10.1016/j.mathsocsci.2015.06.007

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