A state-contingent production approach to principal-agent problems with an application to point-source pollution control

Two basic representations of principal-agent relationships, the 'state-space' and 'parameterized distribution' formulations, have emerged. Although the state-space formulation appears more natural, analytical studies using this formulation have had limited success. This paper develops a state-space formulation of the moral-hazard problem using a general representation of production under uncertainty. A closed-form solution for the agency-cost problem is derived. Comparative-static results are deduced. Next we solve the principal's problem of selecting the optimal output given the agency-cost function. The analysis is applied to the problem of point-source pollution control. (C) 1998 Published by Elsevier Science S.A. All rights reserved.

The principal-agent matching market

We propose a model based on competitive markets in order to analyze an economy with several principals and agents. We model the principal-agent economy as a two-sided matching game and characterize the set of stable outcomes of this principal-agent matching market. A simple mechanism to implement the set of stable outcomes is proposed. Finally, we put forward examples of principal-agent economies where the results fit into.

The Relevance of the Principal-Agent Model for the Analysis of Public Policies : Do the Objectives Conflict ?

This paper aims to provide empirical support for the use of the principal-agent framework in the analysis of public sector and public policies. After reviewing the different conditions to be met for a relevant analysis of the relationship between population and government using the principal-agent theory, our paper focuses on the assumption of conflicting goals between the principal and the agent. A principal-agent analysis assumes in effect that inefficiencies may arise because principal and agent pursue different goals. Using data collected during an amalgamation project of two Swiss municipalities, we show the existence of a gap between the goals of the population and those of the government. Consequently, inefficiencies as predicted by the principal-agent model may arise during the implementation of a public policy, i.e. an amalgamation project. In a context of direct democracy where policies are regularly subjected to referendum, the conflict of objectives may even lead to a total failure of the policy at the polls.

Agency problems with non-smooth decision profiles: the case of monopoly under product quality

A method for dealing with monotonicity constraints in optimal control problems is used to generalize some results in the context of monopoly theory, also extending the generalization to a large family of principal-agent programs. Our main conclusion is that many results on diverse economic topics, achieved under assumptions of continuity and piecewise differentiability in connection with the endogenous variables of the problem, still remain valid after replacing such assumptions by two minimal requirements.

Social control of public expenditures in a multilevel principal-agent approach

ABSTRACTThis study enhances the principal-agent model by incorporating a multilevel perspective and differences among agency situations. A theoretical discussion is developed using a proposed intersection of methodological focuses and a descriptive-exemplificative hypothetical analysis. The analysis is applied to public expenditure social control in representative democracies, and as a result, a principal-agent model unfolds that incorporates a decision-making perspective and focuses on formulation, negotiation, articulation, and implementation competencies. Thus, it is possible to incorporate elements into the principal-agent model to make it more permeable to individual, group, and societal idiosyncrasies with respect to public expenditure social control.

Principal-agent issues in asset acquisition: UK institutions and their investment agents

This paper explores principal‐agent issues in the stock selection processes of institutional property investors. Drawing upon an interview survey of fund managers and acquisition professionals, it focuses on the relationships between principals and external agents as they engage in property transactions. The research investigated the extent to which the presence of outcome‐based remuneration structures could lead to biased advice, overbidding and/or poor asset selection. It is concluded that institutional property buyers are aware of incentives for opportunistic behaviour by external agents, often have sufficient expertise to robustly evaluate agents’ advice and that these incentives are counter‐balanced by a number of important controls on potential opportunistic behaviour. There are strong counter‐incentives in the need for the agents to establish personal relationships and trust between themselves and institutional buyers, to generate repeat and related business and to preserve or generate a good reputation in the market.

Principal-Agent Theory and the World Trade Organization: Complex Agency and ‘Missing Delegation’

This paper analyses the World Trade Organization within a principal-agent framework. The concept of complex agency is introduced to focus on the variety of actors that comprise an international organization. Special attention is paid to the relationship between contracting parties’ representatives and the Secretariat. In the empirical part, the paper analyses the role of the Secretariat in assisting negotiations and presents evidence of declining influence. It is shown how principal-agent theory can contribute to addressing this ‘puzzle of missing delegation’. The paper concludes with a cautionary note as to the ‘location’ of international organizations’ emerging pathologies and calls for additional research to address the relationship between material and social sources to explain behaviour of the key actors within the complex agency.

A Principal-Agent Model of Contracting in Major League Baseball

Traditional economic analyses of the reserve clause in major league baseball view it as having arisen from the superior bargaining of owners compared to players. This article interprets it instead as promoting efficient investment by teams in player development, given the transferability of player skills to other teams. Using a principal-agent framework, the article shows that limited player mobility emerges as part of the optimal contract between players (principals) and teams (agents).

The European Commission and International Trade Negotiations: A Principal-Agent Approach. IES WORKING PAPER 2/2011

Starting from the concept of delegation of power in external trade policy, this paper aims to investigate the dynamics surrounding the European Union’s position in international trade negotiations. The analysis centres on the role of the European Commission (the agent), which by means of Treaty-based delegation and as mandated by the Council (the principal) acts as the sole trade negotiator in the international sphere on behalf of the European Union (EU). The broader negotiating process is thus conceptualised as a threelevel game, where the Commission holds an intermediary position between the European and international levels and also interacts with the Member States in the Council. After an insight into the European decision-making process for external trade, the paper further analyses the Commission’s role during the multilateral trade negotiations of the Doha Development Round. By applying the principal-agent theory to international trade negotiations in general, and subsequently to the controversial agricultural negotiations, this paper seeks to investigate some of the potential sources of autonomy that the Commission can draw upon while upholding an EU position at the international level, in addition to the “hardball” job of balancing the interests of the Member States with those of World Trade Organisation (WTO) partners. Along these lines, the paper finally aims to contribute to the literature concerning agency autonomy in EU external trade relations but also to provide a better understanding of inter-institutional relations within the EU as they may unfold in practice.