Ambiguity, Agency Relationships and Adverse Selection

Gerard Mondello

No 2012-06, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: This paper applies recent results and advances in the field of ambiguity theory to adverse selection in a delegation process. Our results are the following ones: i) a relevant second-best contract induces no production distortion considering the efficient agent. This alike to the standard case. But the principal will pay him an higher information rent compared the standard case; ii) This is due to the level of transfer paid to the inefficient agent which is higher than under the complete information system (i.e. the first best…); The above results are reached when the agent has neither fully optimistic nor optimistic beliefs. When, he feels an extreme feeling then, the information rent and second best transfers are inside bounds similar to the SEU case; iv) as a consequence, the principal has to adopt a flexible behavior consisting in acquiring new information for becoming either entirely optimistic or pessimistic to minimize transfers and information rent in the proposed delegation contract.

Keywords: Asymmetric information; agency theory; adverse selection; uncertainty; ambiguity theory; irreversibility; information arrival (search for similar items in EconPapers)
JEL-codes: D80 D82 D86 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://195.220.190.85/GREDEG-WP-2012-06.pdf First version, 2012 (application/pdf)

Related works:
Working Paper: Ambiguity, Agency Relationships and Adverse Selection (2012)
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:gre:wpaper:2012-06

Access Statistics for this paper

More papers in GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France Contact information at EDIRC.
Bibliographic data for series maintained by Patrice Bougette (patrice.bougette@univ-cotedazur.fr).