The Principal-Agent Matching Market

Abstract

We propose an agency model based on competitive markets in order to analyse an economy with several homogeneous principals and heterogeneous agents. We model the principal-agent economy as a two-sided matching game and characterise the set of stable outcomes (equilibria) of this market. In this regard we generalise the assignment game of Shapley and Shubik (1972). Unlike in the standard principal-agent theory, equilibrium payoffs of all the individuals are endogenous, equilibrium contracts are Pareto optimal, and the incremental surplus generated in a principal-agent relationship accrues to the tenant. We design a simple non-cooperative game which implements the set of stable outcomes in subgame perfect equilibrium. We also suggest policy measures in relation to efficiency and income distribution.

A General Equilibrium Analysis of Personal Bankruptcy Law

“…Finally, other papers studying stable allocations in matching markets with contracts include Dam and Perez‐Castrillo (), Besley and Ghatak (), and Legros and Newman (). Methodologically, our result concerning equivalence of stable allocations and Walrasian allocations of contracting equilibrium models may be of some independent interest, as it provides a convenient and simple method for deriving comparative static effects of parametric changes.…”

Putting Agency and Integrity to the Test

“…Assortative matching is a natural phenomenon in labor markets. For this reason, , , and consider the effects of assortative matching between agent and principal types; Besley/Ghatak and Dam/Perez‐Castrillo also require that matching be stable in the sense that it is immune to a deviation in which any principal and agent can negotiate a contract that makes both of them better off. We relax this stability assumption because our approach to assortative matching is from an evolutionary perspective in order to test for the robustness of the alternative agent and principal types defined herein.…”

Optimal Incentives in a Principal–Agent Model with Endogenous Technology

“…A few other authors have contributed to this important relationship in principal-agent models. Among them, Mookherjee and Ray [14] who model an infinitely repeated interaction among principals and agents randomly matched at each period, Barros and Macho-Stadler [15]who look into a situation where several principals compete for an agent and Dam and Castrillo [16]who propose a model to analyze an economy with several principals and agents in order to characterize the set of stable outcomes. of the agent's risk aversion on incentives.…”