Information, Risk Sharing, and Incentives in Agency Problems

26 Pages Posted: 6 Feb 2017

See all articles by Jia Xie

Jia Xie

Government of Canada - Bank of Canada

Date Written: February 2017

Abstract

This article studies the use of information for incentives and risk sharing in agency problems. When the principal is risk neutral or the outcome is contractible, risk sharing is unnecessary or dealt with by a contract on the outcome, so information systems are used for incentives only. When the outcome is noncontractible, a risk‐averse principal relies on imperfect information for both incentives and risk sharing. Under the first‐order approach, this article relaxes Gjesdal's criterion for ranking information systems and finds conditions justifying the first‐order approach when the principal is risk averse and the outcome is noncontractible.

Suggested Citation

Xie, Jia, Information, Risk Sharing, and Incentives in Agency Problems (February 2017). International Economic Review, Vol. 58, Issue 1, pp. 157-182, 2017, Available at SSRN: https://ssrn.com/abstract=2911330 or http://dx.doi.org/10.1111/iere.12212

Jia Xie (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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