Risky Allocations from a Risk-Neutral Informed Principal

Michela Cella ()

No 234, Economics Series Working Papers from University of Oxford, Department of Economics

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.

Keywords: Contract; Adverse Selection; Informed Principal; Risk Aversion (search for similar items in EconPapers)
JEL-codes: C72 D23 D82 (search for similar items in EconPapers)
Date: 2005-04-01
New Economics Papers: this item is included in nep-fmk and nep-upt
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Citations: View citations in EconPapers (2)

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Journal Article: Risky allocations from a risk-neutral informed principal (2005)
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