An Analysis of the Principal-Agent Problem

• Published in: Econometrica Vol. 51; no. 1; pp. 7 - 45
• Main Authors: Grossman, Sanford J., Hart, Oliver D.
• Format: Journal Article
• Language: English
• Published: Menasha, Wis The Econometric Society 01.01.1983; George Banta Pub. Co. for the Econometric Society; Blackwell Publishing Ltd
• Subjects: Costs; Economic theory; Expected utility; Incentive compatibility problem; Lotteries; Minimization of cost; Principal agent problem; Risk aversion; Risk sharing; Spreading risk; Sufficient conditions; Utility functions

Most analyses of the principal-agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent's utility being at a stationary point. An important paper of Mirrlees has shown that this approach is generally invalid. We present an alternative...