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Multi-task agency with unawareness

Ernst-Ludwig von Thadden and Xiaojian Zhao ()

Theory and Decision, 2014, vol. 77, issue 2, 197-222

Abstract: The paper introduces the problem of unawareness into multi-dimensional Principal–Agent theory. We introduce two key parameters to describe the problem, the extent and the effect of unawareness, show under what conditions it is optimal for the Principal to propose an incomplete or a complete contract, and characterize the incentive power of optimal linear contracts. If Agents differ in their unawareness, optimal incentive schemes can be distorted for both aware and unaware Agents, because, different from standard contract theory, the single-crossing property fails to hold. In this case, even aware Agents can be subject to inefficiently high or low incentives. Copyright Springer Science+Business Media New York 2014

Keywords: Multi-task agency; Unawareness; Moral hazard; Screening; Incomplete contracts; D01; D86; D82; D83 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11238-013-9397-9

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