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- Title
Equilibrium and Agency -- Inadmissible Agents in the Public Agency Problem.
- Authors
Ross, Stephen A.
- Abstract
This article studies the qualitative properties of equilibrium in markets for agents. An agency relationship arises when one party, the agent, takes actions on behalf of another party, a principal. The theory of agency was first developed in different contexts by Robert Wilson (1968, 1969), A. Michael Spence and Richard Zeckhauser (1973, 1974), and has been extended in a number of different directions. Steven Shavell, for example, has examined moral hazard issues associated with imperfectly monitoring the agent's effort and Milton Harris and Artur Raviv have looked at optimal contract structures. Consider a market in which agents compete to serve the interests of principals. Agents have a sure opportunity cost or wage ω0, and an agent will supply his services to the market as long as the certainty equivalent wage of serving as an agent does not fall short of ω0. The service performed by agents consists of choosing an act α ∈ A, a set of feasible actions. Subsequent to the choice, a state of nature θ ∈ Ω is realized yielding a monetary payoff, w (α, θ). The payoff is shared, with the agent receiving a fee schedule ƒ (w(α, θ)), and the principal receiving w -- ƒ.
- Subjects
MARKET equilibrium; ECONOMIC equilibrium; OPPORTUNITY costs; COMMERCIAL agents; MARKETS
- Publication
American Economic Review, 1979, Vol 69, Issue 2, p308
- ISSN
0002-8282
- Publication type
Article