Optimal contract mechanisms for principal-agent problems with moral hazard and adverse selection

1991 ◽  
Vol 1 (4) ◽  
pp. 323-338 ◽  
Author(s):  
F. H. Page
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Principal Agent ◽  
Optimal Contract

Agency, Information, and the Structure of Moral Problems in Business

2006 ◽  
Vol 28 (2) ◽  
pp. 177-195 ◽  
Author(s):  
Bryan W. Husted
Keyword(s):  
Asymmetric Information ◽  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Information Economics ◽  
Principal Agent ◽  
Ethical Problems ◽  
Agent Model ◽  
Moral Problems ◽  
Principal Agent Model

Many ethical problems in business can be characterized as having elements of incomplete and/or asymmetric information. This paper analyzes such problems using information economics and the principal-agent model. It defines the nature of moral problems in business and then applies principal-agent models involving adverse selection and moral hazard to these problems. Possible solutions to conditions of information asymmetry are examined in order to support the development of organizational virtue.

scholarly journals Peran Kelembagaan Perdesaan untuk Keberlanjutan Penerapan SRI di Kabupaten Karawang

2014 ◽  
Vol 14 (2) ◽  
pp. 109-127
Author(s):  
Luh Putu Suciati ◽  
Bambang Juanda ◽  
Akhmad Fauzi ◽  
Ernan Rustiadi
Keyword(s):  
Moral Hazard ◽  
Transaction Costs ◽  
Adverse Selection ◽  
Institutional Economics ◽  
Transaction Cost Economics ◽  
Revenue Sharing ◽  
Principal Agent ◽  
Farm Work ◽  
Logit Regression ◽  
Farmer Groups

AbstractSustainability of System of Rice Intensication (SRI) requires rural institution role. The study was conducted in Karawang and uses institutional economics approach and logit regression. The analysis shows potential problems of SRI related with principal-agent/institutional relation and economics transaction costs. Strengthening the activities within farmer groups will reduce economics transaction costs in beginning of application. Farmer will choose "bagi hasil/revenue sharing" as land management cooperation with moderate risks and transaction costs. Monitoring and incentive mechanism will reduce problems of adverse selection and moral hazard. Some factors which determine the sustainability of SRI are production, principal position, off farm work and ex ante transaction costs.Keywords: Rural Institution, Transaction Cost Economics, System of Rice Intensication AbstrakKeberlanjutan penerapan metode System of Rice Intensication (SRI) membutuhkan peran kelembagaan perdesaan. Studi dilakukan di Kabupaten Karawang dan menggunakan pendekatan kelembagaan ekonomi dan regresi logit. Hasil analisis menunjukkan potensi problem metode SRI terkait hubungan kelembagaan principal-agent dan biaya transaksi ekonomi. Penguatan kinerja kelembagaan perdesaan melalui kegiatan bersama dalam kelompok tani mengurangi biaya transaksi ekonomi pada awal aplikasi SRI. Pilihan kerjasama pengelolaan lahan pola bagi hasil banyak dipilih terkait risiko dan biaya transaksi yang moderat. Potensi masalah berupa moral hazard dan adverse selection dapat dikurangi dengan pemantauan dan mekanisme insentif. Faktor determinan keberlanjutan penerapan metode SRI adalah peningkatan produksi padi, posisi sebagai pemilik lahan, pekerjaan di luar usaha tani, dan biaya transaksi sebelum pelaksanaan.Kata kunci: Kelembagaan Perdesaan, Biaya Transaksi Ekonomi, System of Rice Intensication

Double-sided moral hazard, information screening and the optimal contract

2016 ◽  
Vol 6 (4) ◽  
pp. 404-431 ◽  
Author(s):  
Jin Xue ◽  
Yiwen Fei
Keyword(s):  
Venture Capital ◽  
Moral Hazard ◽  
Capital Investment ◽  
Principal Agent ◽  
Optimal Contract ◽  
Fixed Income ◽  
Content Type ◽  
Agent Model ◽  
Venture Capital Investment ◽  
Principal Agent Model

Purpose In the practice of venture capital investment, the venture capital will not only claim the share of the enterprise’s future output, but also a certain amount of fixed income. The purpose of this paper is to examine the optimal contract which blends the variable ownership income and the fixed income theoretically so as to provide a keen insight into the venture capital practice. Design/methodology/approach This paper establishes an extended principal-agent model and researches on the design of optimal contract dominated by venture capital with double-sided moral hazard and information screening. Findings By establishing theoretical models, the main findings are: first, high-quality enterprise tends to relinquish less ownership but give more fixed return to the venture capital as compensation in order to obtain the venture capital financing; second, low-quality enterprise is willing to relinquish more ownership but give less fixed return to the venture capital for financing; third, due to the existence of double-sided moral hazard, neither of the venture capital and the enterprise will exert their best effort. Originality/value This paper furthers the application of principal-agent model in the field of venture capital investment and researches on the optimal contract, considering double-sided moral hazard and adverse selection at the same time originally.

scholarly journals The Problem of Unilateralism in Agency Theory: Towards a Bilateral Formulation

2017 ◽  
Vol 27 (2) ◽  
pp. 163-182 ◽  
Author(s):  
Sareh Pouryousefi ◽  
Jeff Frooman
Keyword(s):  
Social Interaction ◽  
Asymmetric Information ◽  
Moral Hazard ◽  
Agency Theory ◽  
Adverse Selection ◽  
Principal Agent ◽  
Ethical Behaviour ◽  
Cautionary Tale ◽  
Economic Interactions ◽  
Normative Argument

ABSTRACT:Some business ethicists view agency theory as a cautionary tale—a proof that it is impossible to carry out successful economic interactions in the absence of ethical behaviour. The cautionary-tale view presents a nuanced normative characterisation of agency, but itsunilateralfocus betrays a limited understanding of the structure of social interaction. This article moves beyond unilateralism by presenting a descriptive and normative argument for abilateralcautionary-tale view. Specifically, we discuss hat swaps and role dualism in asymmetric-information principal-agent relationships and argue that the norm of reciprocity can function as a moral solution to agency risks in adverse-selection and moral-hazard problems. Our bilateral cautionary-tale formulation extends the normative boundaries of agency theory, while leaving the fundamental economic assumptions of agency theory intact.

scholarly journals Asymmetric awareness and heterogeneous agents

2020 ◽  
Vol 32 (4) ◽  
pp. 461-484
Author(s):  
Antoine Dubus
Keyword(s):  
Moral Hazard ◽  
Heterogeneous Agents ◽  
Contract Design ◽  
The Other ◽  
Principal Agent ◽  
Optimal Contract ◽  
Jel Codes ◽  
Agent Model ◽  
Principal Agent Model

We consider a principal-agent model with moral-hazard and asymmetric awareness and show how the heterogeneity of agents on their aversion to effort affects contract design. We discuss the optimal contract adopted when a principal is aware of all the impacts of an agent’s action, while agents ignore some of them. When a principal faces two types of agents, where one type is more effort-averse than the other, the equilibrium contract is shaped by agent proportions: it pools the agents, separates them, or excludes the more effort-averse agents from the contract. When efforts are observable, all the agents remain unaware, while when efforts are hidden, a principal increases the awareness of the agents to a level commensurate with the nature of the contract. JEL Codes – D82; D83; D86

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