On Multiple-Principal, Multiple-Agent Models of Moral Hazard
10 Pages Posted: 1 Jun 2005 Last revised: 26 Aug 2009
Date Written: June 11, 2008
We provide two examples in a pure moral hazard setting with two principals and two agents. Example 1 shows that a strongly robust equilibrium in simple (direct) mechanisms can no longer be sustained as an equilibrium when a principal can deviate to an indirect communication scheme. Conversely, an equilibrium with one principal offering an indirect mechanism cannot be replicated as an equilibrium in simple mechanisms. Example 2 shows more directly that a payoff profile that can be achieved in equilibrium when one principal offers an indirect mechanism cannot be achieved as an equilibrium profile in simple mechanisms.
JEL Classification: Moral hazard, multiple principals, multiple agents
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