Risky allocations from a risk-neutral informed principal

Michela Cella ()

Review of Economic Design, 2005, vol. 9, issue 3, 202 pages

Abstract: We study a model of informed principal with private values where the principal is risk neutral and the agent is risk averse. We show that the principal, regardless of her type, gains by not revealing her type to the agent through the contract offer. The equilibrium allocation transfers some ex-ante risk from one type of agent to the other. Despite the increase in the principal's surplus, allocative efficiency does not necessarily improve. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Contract; adverse selection; informed principal; risk aversion (search for similar items in EconPapers)
Date: 2005
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Working Paper: Risky Allocations from a Risk-Neutral Informed Principal (2005)
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DOI: 10.1007/s10058-005-0127-9

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