Principal–Agent Problem

Jakša Cvitanić and Jianfeng Zhang
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Jakša Cvitanić: California Institute of Technology
Jianfeng Zhang: University of Southern California

Chapter Chapter 1 in Contract Theory in Continuous-Time Models, 2013, pp 3-6 from Springer

Abstract: Abstract A Principal–Agent problem is a problem of optimal contracting between two parties, one of which, namely the agent, may be able to influence the value of the outcome process with his actions. What kind of contract is optimal typically depends on whether those actions are observable/contractable or not, and on whether there are characteristics of the agent that are not known to the principal. There are three main types of these problems: (i) the first best case, or risk sharing, in which both parties have the same information; (ii) the second best case, or moral hazard, in which the action of the agent is hidden or not contractable; (iii) the third best case or adverse selection, in which the type of the agent is hidden.

Keywords: Principal-agent Problem; Shared Risk (RS); Optimal Contract; Hidden Type (HT); Salanie (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprfcp:978-3-642-14200-0_1

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DOI: 10.1007/978-3-642-14200-0_1

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