Decomposable Principal-Agent Problems

University of Wisconsin Madison Economics Working Paper No. SSRI 2004-14

37 Pages Posted: 21 Sep 2004

See all articles by Georg Nöldeke

Georg Nöldeke

University of Basel; University of Basel

Larry Samuelson

Yale University - Department of Economics; Yale University - Cowles Foundation

Date Written: May 11, 2004

Abstract

This paper investigates conditions under which the adverse selection principal-agent problem can be decomposed into a collection of pointwise maximization problems. The analysis uses an extension of the type assignment approach to optimal nonuniform pricing, pioneered by Goldman, Leland and Sibley (1984), to derive simple sufficient conditions under which such a decomposition is possible. These conditions do not preclude optimal bunching that arises because virtual surplus functions violate the single-crossing property or participation constraints bind at interior types.

Keywords: Principal-Agent Problem, Optimal Bunching

JEL Classification: D82, L14

Suggested Citation

Nöldeke, Georg and Samuelson, Larry, Decomposable Principal-Agent Problems (May 11, 2004). University of Wisconsin Madison Economics Working Paper No. SSRI 2004-14, Available at SSRN: https://ssrn.com/abstract=593761 or http://dx.doi.org/10.2139/ssrn.593761

Georg Nöldeke (Contact Author)

University of Basel ( email )

Peter Merian-Weg 6
Basel, 4002
Switzerland

HOME PAGE: http://sites.google.com/site/georgnoldeke/

University of Basel ( email )

Peter Merian-Weg 6
Basel, 4002
Switzerland

HOME PAGE: http://sites.google.com/site/georgnoldeke/

Larry Samuelson

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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