Agency theory: Limits in the Action Space

Let us now come back to an adverse selection context. Our goal in this section is to understand how one can possibly endogenize the action space used to contract with the agent. 1. Extending the Action Space We start with a highly stylized model of procurement between a principal (the buyer) and an agent

Agency theory: Limits to Rational Behavior

Even though incentive theory has been developed under the standard assumption that all players are rational, it can take into account whatever bounded rationality assumption one may wish to choose.38 However, there is an infinity of possible theories of bounded rationality and, in each case, the modeller must derive spe- cific optimal contracts. Let

Agency theory: Endogenous Information Structures

One often heard criticism of incentive theory is that it takes information structures as given. A more complete view of organizational design should account for the endogeneity of these information structures. To investigate these new issues, we now assume that the agent does not know his type a priori but can decide or not