The New Palgrave Dictionary of Economics

Living Edition
| Editors: Matias Vernengo, Esteban Perez Caldentey, Barkley J. Rosser Jr

Agency Problems

  • Luca Anderlini
  • Leonardo Felli
Living reference work entry


We illustrate agency problems with the aid of heavily stripped-down models which can be explicitly solved. Variations on a principal–agent model with both actors risk-neutral allow us to illustrate a canonical benchmark case, multi-tasking problems and informed-principal ones. We illustrate intertemporal agency problems using a two-period model with a risk-averse agent, which yields linear incentives. We conclude by briefly looking at more recent developments of the field such as present-biased preferences and motivated agents.


Agency problems Commitment Common values Continuous-time models Contract theory Discrete-time models First-order approach Incentive design Insurance–incentives trade-off Intertemporal incentives Limited liability Linear incentive schemes Menu contracts Noisy tasks Non-profit organizations Pooling equilibria Principal and agent Separating equilibria Signalling Soft incentives 

JEL Classifications

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Copyright information

© The Author(s) 2008

Authors and Affiliations

  • Luca Anderlini
    • 1
  • Leonardo Felli
    • 1
  1. 1.