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The Principal Agent Model

The Economic Theory of Incentives
The International Library of Critical Writings in Economics series
Edited by the late Jean-Jacques Laffont, Formerly Professor of Economics, Université des Sciences Sociales de Toulouse, France and University of Southern California, US
Incentive theory is the most important development in economics in the last forty years. The principal-agent model is the core of this theory. This authoritative collection brings together the essential literature concerning the principal-agent model when no restrictions on the design of the principal’s contract exist in terms of complexity, enforcement or rationality.
Extent: 720 pp
Hardback Price: £201.00 Online: £180.90
Publication Date: 2003
ISBN: 978 1 84376 240 9
Availability: In Stock
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  • Economics and Finance
  • Game Theory
  • Industrial Economics
Incentive theory is the most important development in economics in the last forty years. The principal-agent model is the core of this theory. This authoritative collection brings together the essential literature concerning the principal-agent model when no restrictions on the design of the principal’s contract exist in terms of complexity, enforcement or rationality.

Part I covers the foundations of the principal-agent theory from the first historical formulation of the problem to the first attempts to formalize it. Part II deals with the case of moral hazard and adverse selection is the topic of Part III. Part IV presents contributions on current research issues such as the impact of communication constraints, endogenous information structures and multidimensional incentive problems.

The Principal Agent Model will be an indispensable reference source for all students, researchers and professionals specialising in this subject.
‘The economics of asymmetric information has been the most important new tool of economic analysis and has proved powerful in explaining many aspects of the functioning of the economy. The principal-agent relation is a central aspect of asymmetric information. The anthology is exceptionally useful in bringing together every major paper in the field; its thoroughness reflects the deep knowledge of its editor, Jean-Jacques Laffont, one of the outstanding contributors to the field.’
– Kenneth J. Arrow, Stanford University, US
32 articles, dating from 1776 to 1999
Contributors include: K. Arrow, D. Baron, J. Green, B. Holmstrom, E. Maskin, P. Milgrom, J. Mirrlees, J.C. Rochet, D. Sappington, R. Zeckhauser
Contents:
Acknowledgements
Introduction Jean-Jacques Laffont
PART I FOUNDATIONS
1. Adam Smith (1776), ‘Of the Discouragement of Agriculture in the Ancient State of Europe after the Fall of the Roman Empire’
2. Chester I. Barnard (1938/1968), ‘The Economy of Incentives’
3. Kenneth J. Arrow (1963), ‘Uncertainty and the Welfare Economics of Medical Care’
4. Mark V. Pauly (1968), ‘The Economics of Moral Hazard: Comment’
5. Richard Zeckhauser (1970), ‘Medical Insurance: A Case Study of the Tradeoff between Risk Spreading and Appropriate Incentives’
6. Michael Spence and Richard Zeckhauser (1971), ‘Insurance, Information, and Individual Action’
7. Stephen A. Ross (1973), ‘The Economic Theory of Agency: The Principal’s Problem’
PART II MORAL HAZARD
8. J.A. Mirrlees (1999), ‘The Theory of Moral Hazard and Unobservable Behaviour: Part I’
9. Bengt Holmström (1979), ‘Moral Hazard and Observability’
10. Sanford J. Grossman and Oliver D. Hart (1983), ‘An Analysis of the Principal-agent Problem’
11. Ian Jewitt (1988), ‘Justifying the First-order Approach to Principal-agent Problems’
12. Bengt Holmstrom and Paul Milgrom (1991), ‘Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design’
13. William P. Rogerson (1985), ‘Repeated Moral Hazard’
PART III ADVERSE SELECTION
14. J.A. Mirrlees (1971), ‘An Exploration in the Theory of Optimum Income Taxation’
15. Michael Mussa and Sherwin Rosen (1978), ‘Monopoly and Product Quality’
16. Joseph E. Stiglitz (1977), ‘Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market’
17. David P. Baron and Roger B. Myerson (1982), ‘Regulating a Monopolist with Unknown Costs’
18. David P. Baron and David Besanko (1984), ‘Regulation, Asymmetric Information, and Auditing’
19. Roger Guesnerie and Jean-Jacques Laffont (1984), ‘A Complete Solution to a Class of Principal-agent Problems with an Application to the Control of a Self-managed Firm’
20. David P. Baron and David Besanko (1984), ‘Regulation and Information in a Continuing Relationship’
21. Douglas Gale and Martin Hellwig (1985), ‘Incentive-Compatible Debt Contracts: The One-Period Problem’
22. Jean-Jacques Laffont and Jean Tirole (1986), ‘Using Cost Observation to Regulate Firms’
23. Tracy R. Lewis and David E.M. Sappington (1989), ‘Countervailing Incentives in Agency Problems’
24. Michael H. Riordan and David E.M. Sappington (1988), ‘Optimal Contracts with Public ex post Information’
PART IV ADVANCED TOPICS
25. Eric Maskin (1999), ‘Nash Equilibrium and Welfare Optimality’
26. Jerry R. Green and Jean-Jacques Laffont (1986), ‘Incentive Theory with Data Compression’
27. Jerry R. Green and Jean-Jacques Laffont (1986), ‘Partially Verifiable Information and Mechanism Design’
28. Jacques Crémer, Fahad Khalil and Jean-Charles Rochet (1998), ‘Contracts and Productive Information Gathering’
29. Bengt Holmstrom and Paul Milgrom (1987), ‘Aggregation and Linearity in the Provision of Intertemporal Incentives’
30. John Moore and Rafael Repullo (1988), ‘Subgame Perfect Implementation’
31. Eric Maskin and Jean Tirole (1990), ‘The Principal-agent Relationship with an Informed Principal: The Case of Private Values’
32. Mark Armstrong and Jean-Charles Rochet (1999), ‘Multi-dimensional Screening: A User’s Guide’
Name Index