The Principal-Agent Relationship with an Informed Principal: The Case of Private Values

The authors analyze the principal-agent relationship when the principal has private information as a three-stage game: contract proposal, acceptance/refusal, and contract execution. They assume that the information does not directly affect the agent's payoff (private values). Equilibrium exists and is generically locally unique. Moreover, it is Pareto optimal for the different types of principal. The principal generically does strictly better than when the agent knows her information. Equilibrium allocations are the Walrasian equilibria of an "economy" where the traders are different types of principal and "exchange" the slack on the agent's individual rationality and incentive compatibility constraints. Copyright 1990 by The Econometric Society.

[1]  F. Wiser,et al.  The Theory of Value , 1892 .

[2]  J. Mirrlees.  An Exploration in the Theory of Optimum Income Taxation an Exploration in the Theory of Optimum Income Taxation L Y 2 , 2022 .

[3]  J. Hirshleifer.  The Private and Social Value of Information and the Reward to Inventive Activity , 1971 .

[4]  R. Aumann.  Subjectivity and Correlation in Randomized Strategies , 1974 .

[5]  S. Rosen,et al.  Monopoly and product quality , 1978 .

[6]  R. Myerson.  Incentive Compatibility and the Bargaining Problem , 1979 .

[7]  E. Maskin,et al.  The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility , 1979 .

[8]  Sanford J. Grossman,et al.  Implicit Contracts, Moral Hazard, and Unemployment , 1981 .

[9]  R. Myerson,et al.  Regulating a Monopolist with Unknown Costs , 1982 .

[10]  E. Maskin,et al.  Advances in Economic Theory: The theory of incentives: an overview , 1982 .

[11]  Joel Sobel,et al.  A Multi-stage Model of Bargaining , 1983 .

[12]  R. Myerson.  Mechanism Design by an Informed Principal , 1983 .

[13]  D. Fudenberg,et al.  Sequential Bargaining with Incomplete Information , 1983 .

[14]  E. Maskin,et al.  Monopoly with Incomplete Information , 1984 .

[15]  Jean-Jacques Laffont,et al.  A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm , 1984 .

[16]  A. Mas-Colell.  The Theory Of General Economic Equilibrium , 1985 .

[17]  Joseph Farrell.  Credible Neologisms in Games of Communication , 1985 .

[18]  Vincent P. Crawford,et al.  Efficient and Durable Decision Rules: A Reformulation , 1985 .

[19]  J. Laffont,et al.  Using Cost Observation to Regulate Firms , 1986, Journal of Political Economy.

[20]  Sanford J. Grossman,et al.  Perfect sequential equilibrium , 1986 .

[21]  Anat R. Admati,et al.  Strategic Delay in Bargaining , 1987 .

[22]  Drew Fudenberg,et al.  Perfect Bayesian and Sequential Equilibrium , 1991 .

[23]  C. L. Sheng.  A Theory of Value , 1991 .

[24]  E. Maskin,et al.  The principal-agent relationship with an informed principal. II : Common values , 1992 .