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On the generalized principal-agent problem: a comment

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Abstract

Faynzilberg and Kumar (Rev Econ Design 5(1):23–58, 2000) show that the usual Mirrlees–Rogerson conditions to validate the first-order approach in moral hazard agency models are no longer valid in the generalized agency case. They consider the risk-averse agent case and identify one set of technological conditions, where the production technology satisfies the linear distribution function condition in actions and types, that validates ex-ante the first-order approach. With the usefulness of their decomposition approach, we show that the first-order approach in the generalized agency case can be checked ex-ante under the Mirrlees–Rogerson conditions when the agent is risk-neutral but there is a binding limited liability constraint on the agent’s wage.

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Authors and Affiliations

  1. CRESE, University of France-Cornté, 45D avenue de l’observatoire, 25030, Besançon Cedex, France

    Sandrine Ollier

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  1. Sandrine Ollier
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Correspondence to Sandrine Ollier.

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Ollier, S. On the generalized principal-agent problem: a comment. Rev. Econ. Design 11, 1–11 (2007). https://doi.org/10.1007/s10058-007-0025-4

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  • DOI: https://doi.org/10.1007/s10058-007-0025-4

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