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INFORMATION, RISK SHARING, AND INCENTIVES IN AGENCY PROBLEMS
Author(s) -
Xie Jia
Publication year - 2017
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12212
Subject(s) - outcome (game theory) , incentive , principal (computer security) , agency (philosophy) , microeconomics , ranking (information retrieval) , principal–agent problem , contractible space , order (exchange) , perfect information , moral hazard , risk neutral , information asymmetry , information sharing , economics , imperfect , actuarial science , business , risk analysis (engineering) , computer science , finance , computer security , mathematics , linguistics , epistemology , corporate governance , philosophy , combinatorics , machine learning , world wide web
This article studies the use of information for incentives and risk sharing in agency problems. When the principal is risk neutral or the outcome is contractible, risk sharing is unnecessary or dealt with by a contract on the outcome, so information systems are used for incentives only. When the outcome is noncontractible, a risk‐averse principal relies on imperfect information for both incentives and risk sharing. Under the first‐order approach, this article relaxes Gjesdal's criterion for ranking information systems and finds conditions justifying the first‐order approach when the principal is risk averse and the outcome is noncontractible.