Abstract
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.
This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume
Bibliography
Anderlini, L., and L. Felli. 1998. Describability and agency problems. European Economic Review 42: 35–59.
Arrow, K. 1963. Uncertainty and the welfare economics of medical care. American Economic Review 53: 941–973.
Besley, T., and M. Ghatak. 2005. Competition and incentives with motivated agents. American Economic Review 95: 616–636.
Bolton, P., and M. Dewatripont. 2005. Contract theory. Cambridge, MA: MIT Press.
Eliaz, K., and R. Spiegler. 2006. Contracting with diversely naive agents. Review of Economic Studies 73: 689–714.
Fudenberg, D., B. Holmström, and P. Milgrom. 1990. Short-term contracts and long-term agency relationships. Journal of Economic Theory 51: 1–31.
Grossman, S., and O. Hart. 1983. An analysis of the principal–agent problem. Econometrica 51: 7–45.
Hellwig, M., and K. Schmidt. 2002. Discrete-time approximations of the Holmström–Milgrom Brownian-motion model of intertemporal incentive provision. Econometrica 70: 2225–2264.
Holmström, B. 1979. Moral hazard and observability. Bell Journal of Economics 10: 74–91.
Holmström, B., and P. Milgrom. 1987. Aggregation and linearity in provision of intertemporal incentives. Econometrica 55: 303–328.
Holmström, B., and P. Milgrom. 1991. Multitask principal–agent analyses: Incentive contracts, asset ownership, and job design. Journal of Law, Economics, and Organization 7: 24–52.
Holmström, B., and P. Milgrom. 1994. The firm as an incentive system. American Economic Review 84: 972–991.
Jewitt, I. 1988. Justifying the first-order approach to principal–agent problems. Econometrica 56: 1177–1190.
Laffont, J.-J., and D. Martimort. 2002. The theory of incentives. Princeton: Princeton University Press.
Malcomson, J., and F. Spinnewyn. 1988. The multiperiod principal–agent problem. Review of Economic Studies 55: 391–407.
Marschak, J. 1955. Elements for a theory of teams. Management Science 1: 127–137.
Maskin, E., and J. Tirole. 1990. The principal–agent relationship with an informed principal: The case of private values. Econometrica 58: 379–409.
Maskin, E., and J. Tirole. 1992. The principal-agent relationship with an informed principal II: Common values. Econometrica 60: 1–42.
Mirrlees, J. 1975/1999. The theory of moral hazard and unobservable behavior: Part I. Mimeo, Nuffield College, Oxford University. Published in Review of Economic Studies 66, 3–21.
Myerson, R. 1983. Mechanism design by an informed principal. Econometrica 51: 1767–1798.
O’Donoghue, T., and M. Rabin. 2005. Incentives and self control. Mimeo: University of California, Berkeley.
Pauly, M. 1968. The economics of moral hazard. American Economic Review 58: 531–537.
Rey, P., and B. Salanié. 1990. Long-term, short-term and renegotiation: On the value of commitment in contracting. Econometrica 58: 597–619.
Rogerson, W. 1985. The first-order approach to principal–agent problems. Econometrica 53: 1357–1367.
Salanié, B. 2000. The economics of contracts. Cambridge, MA: MIT Press.
Shavell, S. 1979. On moral hazard and insurance. Quarterly Journal of Economics 93: 541–562.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Copyright information
© 2008 The Author(s)
About this entry
Cite this entry
Anderlini, L., Felli, L. (2008). Agency Problems. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_2773-1
Download citation
DOI: https://doi.org/10.1057/978-1-349-95121-5_2773-1
Received:
Accepted:
Published:
Publisher Name: Palgrave Macmillan, London
Online ISBN: 978-1-349-95121-5
eBook Packages: Springer Reference Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences