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Information Aggregation and Efficiency in Agency Contracts with Endogenous Externality

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  • Shingo Ishiguro

Abstract

In this paper we investigate the principal-multi agent relationship with moral hazard where a risk neutral principal contracts with multiple risk averse agents whose actions are unobservable to the principal. We show that the well--known trade--off between incentive and risk sharing can be asymptotically resolved as the number of agents becomes sufficiently large, when an arbitrary fraction of agents can obtain unverifiable perfect signals about the actions of other agents. In particular the contract to attain the asymptotic efficiency has the following features: (i) The wage schemes to some agents are contingent on the task performances of other agents as well as their own performances even though all of them are technologically and statistically independent each other. (ii) The wage scheme specifies only two payment levels for each agent. (iii) The principal does not need to observe all the performances of agents. (iv) The almost first best is uniquely implemented.

Suggested Citation

  • Shingo Ishiguro, 2004. "Information Aggregation and Efficiency in Agency Contracts with Endogenous Externality," Econometric Society 2004 Australasian Meetings 60, Econometric Society.
    • Handle: RePEc:ecm:ausm04:60
    as

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    References listed on IDEAS

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    1. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
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    3. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
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    6. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
    7. Shingo Ishiguro & Hideshi Itoh, 2001. "Moral Hazard and Renegotiation with Multiple Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 1-20.
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    More about this item

    Keywords

    Moral Hazard; Incentive Contracts; Principal-Agent Theory;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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