A new class of sufficient conditions for the first-order approach to the principal-agent problem. (English) Zbl 1328.91078
Summary: The first-order approach can be shown to be valid if the agent’s expected utility is pseudoconcave in effort. We derive new conditions on the agent’s utility function which insures that the expected utility is pseudoconcave. There is a tradeoff of the stringency of the distribution function (exhibited by the Rogerson-Mirrlees conditions, the MLRC and the CDFC) for stringency of the utility function. The new conditions are independent of the MLRC and/or the CDFC and hence we cannot indicate which are more general.
MSC:
| 91B16 | Utility theory |
References:
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