Asymmetric awareness and heterogeneous agents

Antoine Dubus

Rationality and Society, 2020, vol. 32, issue 4, 461-484

Abstract: We consider a principal-agent model with moral-hazard and asymmetric awareness and show how the heterogeneity of agents on their aversion to effort affects contract design. We discuss the optimal contract adopted when a principal is aware of all the impacts of an agent’s action, while agents ignore some of them. When a principal faces two types of agents, where one type is more effort-averse than the other, the equilibrium contract is shaped by agent proportions: it pools the agents, separates them, or excludes the more effort-averse agents from the contract. When efforts are observable, all the agents remain unaware, while when efforts are hidden, a principal increases the awareness of the agents to a level commensurate with the nature of the contract. JEL Codes – D82; D83; D86

Keywords: Economics of contract: theory; unawareness; asymmetric; private information (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ratsoc:v:32:y:2020:i:4:p:461-484

DOI: 10.1177/1043463120963403

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