By Jean-Jacques Laffont
ISBN-10: 0691091846
ISBN-13: 9780691091846
Economics has a lot to do with incentives--not least, incentives to work flat out, to supply caliber items, to review, to take a position, and to save lots of. even though Adam Smith amply proven this greater than 200 years in the past in his research of sharecropping contracts, in basic terms in fresh a long time has a conception all started to emerge to put the subject on the middle of monetary pondering. during this e-book, Jean-Jacques Laffont and David Martimort current the main thorough but obtainable creation to incentives thought to this point. significant to this thought is a straightforward query as pivotal to modern day administration because it is to economics learn: What makes humans act in a selected approach in an financial or enterprise state of affairs? In looking a solution, the authors give you the methodological instruments to layout associations that may be certain solid incentives for monetary agents.This e-book makes a speciality of the principal-agent version, the "simple" state of affairs the place a vital, or corporation, delegates a job to a unmarried agent via a contract--the essence of administration and agreement idea. How does the landlord or supervisor of an organization align the goals of its numerous contributors to maximise gains? Following a short ancient evaluation exhibiting how the matter of incentives has come to the fore some time past centuries, the authors dedicate the majority in their paintings to exploring principal-agent types and diverse extensions thereof in gentle of 3 kinds of details difficulties: opposed choice, ethical threat, and non-verifiability. delivering an unheard of examine an issue very important to commercial association, hard work economics, and behavioral economics, this publication is decided to turn into the definitive source for college kids, researchers, and others who may well locate themselves puzzling over what contracts, and the incentives they embrace, are fairly all approximately.
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Extra resources for The Theory of Incentives: The Principal-Agent Model
Example text
However, we will keep the by now classic expression of adverse selection to describe a principal-agent problem in which the agent has private information about a parameter of his optimization problem. 37 CHAPTER 2. THE RENT EXTRACTION-EFFICIENCY TRADE-OFF 38 to a broker who will be the only one to know the prospects of the possible investments. A stockholder delegates the firm’s day-to-day decisions to a manager who will be the only one to know the business conditions. An insurance company provides insurance to agents who privately know how good a driver they are.
CHAPTER 1. INCENTIVES IN ECONOMIC THOUGHT 32 anonymous menu is an incentive mechanism which leads consumers to reveal their type by their self-selection in the menu. Dupuit (1844) developed the concept of consumer surplus and used it to discuss price discrimination. Dupuit was well aware of the incentive problems faced by the pricing of infrastructures. “The best of all tariffs would be the one which would make pay those which use a way of communication a price proportional to the utility they derive from using this service...
It was critized and under constant evolution. With the passing of Stalin, the discussion became more intense and quite open with the 1962 Liberman paper in the Pravda and culminated in the 1965 Reform. 23 In the famous socialist controversy of the thirties, incentives were largely overlooked. Lange (1936) perceived no problem with imposing rules to managers. “The decisions of the managers of production are no longer guided by the aim to maximize profit. Instead, there are certain rules imposed on them by the Central Planning Bureau which aim at satisfying consumers’ preferences in the best way possible.
The Theory of Incentives: The Principal-Agent Model by Jean-Jacques Laffont
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