Adverse selection under ignorance

Javier López-Cuñat

Economic Theory, 2000, vol. 16, issue 2, 379-399

Abstract: We examine an adverse selection relationship in which the principal may ignore the ex ante distribution of the agent's types. The principal's behavior is described by a disutility function that covers the standard minimax regret and minimax loss criteria. We show that the incentive compatible and individually rational mechanism, which minimizes the maximal (or the minimal) principal's disutility over a set of priors, requires the efficient agents to realize the corresponding first-best actions and may demand actions lower than the first-best ones from less efficient agents. We also analyze the qualitative differences between the case in which the principal considers regrets and the case in which he considers losses.

Keywords: Principal-agent problem; Adverse selection; Minimax regret criterion; Minimax loss criterion. (search for similar items in EconPapers)
Date: 2000-07-14
Note: Received: 19 October 1998; revised version: 9 November 1999
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://link.springer.de/link/service/journals/00199/papers/0016002/00160379.pdf (application/pdf)
Access to the full text of the articles in this series is restricted

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:joecth:v:16:y:2000:i:2:p:379-399

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().