Information Aggregation and Efficiency in Agency Contracts with Endogenous Externality

Shingo Ishiguro

No 60, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: In this paper we investigate the principal-multi agent relationship with moral hazard where a risk neutral principal contracts with multiple risk averse agents whose actions are unobservable to the principal. We show that the well--known trade--off between incentive and risk sharing can be asymptotically resolved as the number of agents becomes sufficiently large, when an arbitrary fraction of agents can obtain unverifiable perfect signals about the actions of other agents. In particular the contract to attain the asymptotic efficiency has the following features: (i) The wage schemes to some agents are contingent on the task performances of other agents as well as their own performances even though all of them are technologically and statistically independent each other. (ii) The wage scheme specifies only two payment levels for each agent. (iii) The principal does not need to observe all the performances of agents. (iv) The almost first best is uniquely implemented.

Keywords: Moral Hazard; Incentive Contracts; Principal-Agent Theory (search for similar items in EconPapers)
JEL-codes: D82 M54 (search for similar items in EconPapers)
Date: 2004-08-11
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