Common-Knowledge and Cooperation Management I
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.
KeywordsBelief Communication Effort level Moral hazard Principal-agent model under uncertainty
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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