Common-Knowledge and Cooperation Management I

Conference paper
Part of the Lecture Notes in Electrical Engineering book series (LNEE, volume 355)

Abstract

Recently there are many issues of moral hazards and adverse selection presented in each and every contract, in which we have a self-interest and information that the other party does not possess. There is still a need for more information on how we handle a party to a contract with more information than us. This paper re-examines the issue in the framework of a principal-agent model under uncertainty based on S5n-knowledge. It highlights epistemic conditions for a possible resolution of the moral hazard between buyer and suppliers. We show that if the buyer and suppliers commonly know each agent’s belief on the others’ efforts, then all effort levels such that the expected marginal costs actually coincide for them can be characterised as the critical points of the refunded proportional rate function. This implies our recommendation that, for removing out such moral hazard in the buyer-supplier cooperation, the buyer and suppliers should commonly know their beliefs on the others’ effort levels.

Keywords

Belief Communication Effort level Moral hazard Principal-agent model under uncertainty 

Notes

Acknowledgements

I was partially supported by JSPS Grants-in-Aid for Scientific Research (C) No. 23540175 and by BUSAIKU-BUHI Foundation for Scientific Research.

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Copyright information

© Springer International Publishing Switzerland 2015

Authors and Affiliations

  1. 1.Department of Natural SciencesIbaraki National College of TechnologyIbarakiJapan
  2. 2.Mathematical Research Institute of BUSAIKU-BUHI FoundationIbarakiJapan
  3. 3.Institute of Applied Mathematical ResearchKarRC, RASPetrozavodskRussia

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