Wealth and the principal-agent matching

Paulo Fagandini

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: I study the role the agent's wealth plays in the principal-agent matching with moral hazard and limited liability. I consider wealth and talent as the agent's type, and size as the firm's (principal's) type. Because utility is not perfectly transferable in this setup, I use generalized increasing differences and find that wealthier agents match with bigger firms, when talent is homogeneous among them, whereas for equally wealthy agents, more talented agents will match with bigger firms. I describe economic conditions over types such that pairs of higher types will write contracts in which the agent obtains more than the information rents, through a higher bonus, increasing the expected surplus. Finally, I provide an example in which wealth is distributed among agents in such a way that it reverses the standard result of positive assortative matching between talent and firm size.

Keywords: Moral hazard; asymmetric information; matching; non transferable utility (search for similar items in EconPapers)
JEL-codes: C78 D82 D86 J33 M12 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2017
New Economics Papers: this item is included in nep-bec, nep-hrm, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp628

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