Risky Allocations from a Risk-Neutral Informed Principal

We study a model of informed principal with private values where the principal is risk neutral and the agent is risk averse. We show that the principal, regardless of her type, gains by not revealing her type to the agent through the contract offer. The equilibrium allocation transfers some ex-ante risk from one type of agent to the other. Despite the increase in the principal`s surplus, allocative efficiency does not necessarily improve.

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Year of publication:	2005-04-01
Authors:	Cella, Michela
Institutions:	Department of Economics, Oxford University
Subject:	Contract \| Adverse Selection \| Informed Principal \| Risk Aversion

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Extent:	application/pdf
Series:	Economics Series Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 234
Classification:	C72 - Noncooperative Games ; D23 - Organizational Behavior; Transaction Costs; Property Rights ; D82 - Asymmetric and Private Information
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005051099