Ad
related to: principal agent theory economics examples list of activities
Search results
Results From The WOW.Com Content Network
In this situation, the theory posits that the agent's activities are diverted from following the principal's interests and drive the agent to maximize the agent's interests instead. [11] The principal and agent theory emerged in the 1970s from the combined disciplines of economics and institutional theory.
Since there is asymmetric information, where the principal is not necessarily aware of what the agent is doing, moral hazard can exist: the agent can act in such a way that the agent's own interests are met, rather than those of the principal. [4] This is called the principal–agent problem and is an important theory in economics and political ...
In economics, an agent is an actor (more specifically, a decision maker) in a model of some aspect of the economy. Typically, every agent makes decisions by solving a well- or ill-defined optimization or choice problem. For example, buyers and sellers are two common types of agents in partial equilibrium models of a single market.
In theory, agents will only take on bonding costs where the marginal benefit of these costs are equal to or greater than the marginal cost to the agent. Bonding costs may reduce the steps that a principal will need to take to monitor the agent. Therefore, the agent's acceptance of these costs may produce a higher utility outcome for both ...
In microeconomics and contract theory, the first-order approach is a simplifying assumption used to solve models with a principal-agent problem. [1] It suggests that, instead of following the usual assumption that the agent will take an action that is utility-maximizing, the modeller use a weaker constraint, and looks only for actions which satisfy the first-order conditions of the agent's ...
Such a situation runs counter to neo-classical economic theory. The neo-classical market is instantaneous, forbidding the development of extended agent-principal (employee-manager) relationships, planning, and of trust. Coase concludes that “a firm is likely therefore to emerge in those cases where a very short-term contract would be ...
Mechanism design (sometimes implementation theory or institution design) [1] is a branch of economics and game theory. It studies how to construct rules—called mechanisms or institutions—that produce good outcomes according to some predefined metric , even when the designer does not know the players' true preferences or what information ...
They are most commonly studied in the context of principal-agent problems. [citation needed] Principal-agent theory addresses issues of information asymmetry. [7] Here, the government is the principal, and the operator the agent, regardless of who owns the operator. Principal-agent theory is applied in incentive regulation and multi-part ...