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Risky allocations from a risk-neutral informed principal

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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.

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Authors and Affiliations

  1. Department of Economics, University of Oxford, Manor Road, OX1 3UQ, Oxford , UK

    Michela Cella

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  1. Michela Cella
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Correspondence to Michela Cella.

Additional information

Received: 26 January 2004, Accepted: 5 May 2005

JEL Classification:

C72, D23, D82

I would like to thank my supervisor Leonardo Felli for suggestions and Leo Ferraris for helpful discussions. All remainig errors are my own.

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Cella, M. Risky allocations from a risk-neutral informed principal. Rev. Econ. Design 9, 191–202 (2005). https://doi.org/10.1007/s10058-005-0127-9

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  • DOI: https://doi.org/10.1007/s10058-005-0127-9

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