A Numerical Approach to the Contract Theory: the Case of Adverse Selection

Hideo Hashimoto, Kojun Hamada and Nobuhiro Hosoe
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Hideo Hashimoto: Osaka University

No 11-27, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: By building and solving numerical models of the parts supply problems (an example of the adverse selection problems), and analyzing various issues of the contract theory, we demonstrate the benefits of the numerical approach. First, this approach facilitates the understanding of the contract theory by beginners, who find it difficult to comprehend the theoretical and general models. Second, this approach could extend the analysis areas beyond those of the theoretical models, which are limited by the simplifying assumptions imposed in order to make their analysis possible. The expansion of the number of the supplier types is one example.

Keywords: Numerical approach; principal-agent problem; adverse selection; numerical and computational model; Spence-Mirrlees single crossing property; monotonicity (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-03
New Economics Papers: this item is included in nep-cmp and nep-cta
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