In this paper we analyze an adverse selection model with one principal and one agent, who are both risk neutral and have private information. We assume that the private information of the principal is correlated with that of the agent. The main result of the paper is that the principal can extract a larger share of the surplus from the agent than in the case where her information is public. The principal can design such a contract because she exploits the fact that her type is an informative signal on the agent's one. We fully characterize the equilibrium of the game in which different types of principal offer the same menu of contracts that leaves the agent uninformed about the principal's type. This gives more freedom to the principal when setting the transfers because the agent's constraints need to hold only at an interim stage.
Constitutional structures shape politicians' behaviour and hence policy outcomes through the dierent incentive schemes at work. In this paper we analyse these mechanisms in parliamentary and presidential systems. Such a comparison is carried over by analysing how the two systems are able to select the ecient policy in presence of asymmetric information. The constitutional structures dier in that the policy proposal in parliamentary democracies is observable and condence-dependent. The main ndings suggest that the parliament responds to the incentive scheme better in presidential systems due to less uncertainty that legislators face over their term limit. However, the parliamentary system induces the executive to behave more eciently due to selection and disciplining eects.
We analyze competition between …rms engaged in R&D activities in the choice of incentive contracts for managers with hidden productivities. The equilibrium screening contracts require extra e¤ort/investment from the most productive managers compared to the …rst best contracts: under additional assumptions on the hazard rate of the distribution of types we obtain nodistortion in the middle rather than at the top. Moreover, the equilibrium contracts are characterized by e¤ort di¤erentials between (any) two types that are always increasing with the number of …rms, suggesting a positive relation between competition and high-powered incentives. An inverted-U curve between competition and absolute investments can emerge for the most productive managers, especially when entry is endogenous. These results persist when contracts are not observable, when they include quantity precommitments, and when products are imperfect substitutes.
We analyze the choice of incentive contracts by olipolistic …rms that compete on the product market. Managers have private information and in the …rst stage they exert cost reducing e¤ort. In equilibrium the standard "no distortion at the top" property disappears and two way distortions are optimal. We extend our analysis to other informational, contractual and competitive settings.
We study a model of informed principal with private values where the principal is risk neutral and the agent is risk averse. We show that the principal, regardless of her type, gains by not revealing her type to the agent through the contract offer. The equilibrium allocation transfers some ex-ante risk from one type of agent to the other. Despite the increase in the principal's surplus, allocative efficiency does not necessarily improve. Copyright Springer-Verlag Berlin/Heidelberg 2005Contract, adverse selection, informed principal, risk aversion,
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