Why Does it Matter that Beliefs and Valuations be Correctly Represented?

S. Grant; E. Karni

Why Does it Matter that Beliefs and Valuations be Correctly Represented?

S. Grant, E. Karni

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Abstract

This paper contains an analysis of a simple principal-agent problem illustrating possible problems that may arise when the prinicpal ascribes to the agent subjective probabilities and utilities that are implied by the subjective expected utility model but do not represent the agent's beliefs and valuations. In particular, it is possible that an incentive contract designed by the principal indices the agent to choose an action that is not in the principal's best interest.

Original language	English
Place of Publication	Tilburg
Publisher	Microeconomics
Number of pages	14
Volume	2002-12
Publication status	Published - 2002

Publication series

Name	CentER Discussion Paper
Volume	2002-12

Keywords

principal agent theory
moral hazard

Access to Document

12

Cite this

@techreport{27a5efe4220549cdb87955a983f8aa69,

title = "Why Does it Matter that Beliefs and Valuations be Correctly Represented?",

abstract = "This paper contains an analysis of a simple principal-agent problem illustrating possible problems that may arise when the prinicpal ascribes to the agent subjective probabilities and utilities that are implied by the subjective expected utility model but do not represent the agent's beliefs and valuations. In particular, it is possible that an incentive contract designed by the principal indices the agent to choose an action that is not in the principal's best interest.",

keywords = "principal agent theory, moral hazard",

author = "S. Grant and E. Karni",

note = "Pagination: 14",

year = "2002",

language = "English",

volume = "2002-12",

series = "CentER Discussion Paper",

publisher = "Microeconomics",