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Optimal Contracts for Agents with Adverse Selection
Joint Authors
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2020, Issue 2020 (31 Dec. 2020), pp.1-17, 17 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2020-01-07
Country of Publication
Egypt
No. of Pages
17
Main Subjects
Abstract EN
Due to information asymmetry, adverse selection exists largely in the multiagent market.
Aiming at these problems, we develop two models: pure adverse selection model and mixed adverse selection and moral hazard model.
We make the assumption that a type of agent is discrete and effort level is continuous in the models.
With these models, we investigate the characters that make an optimal contract as well as the conditions under which the utility of a principal and agents can be optimized.
As a result, we show that, in the pure adverse selection model, the conditions to reach the optimal utility of a principal and individual agents are that a principal needs to design different contracts for different types of agents, and an individual agent chooses the corresponding type of contracts.
For the mixed model, we show that incentive constraint for agents plays a very important role.
In fact, we find that whether a principal provides high-type contract or a separating equilibrium contract depends on the probability of existence of low-type agents in the market.
In general, if a separating equilibrium contract is issued, then information asymmetry will cause the utility of the high-type agents to be less than that of the case in full information.
American Psychological Association (APA)
Li, Chao& Qiu, Zhijian. 2020. Optimal Contracts for Agents with Adverse Selection. Discrete Dynamics in Nature and Society،Vol. 2020, no. 2020, pp.1-17.
https://search.emarefa.net/detail/BIM-1153616
Modern Language Association (MLA)
Li, Chao& Qiu, Zhijian. Optimal Contracts for Agents with Adverse Selection. Discrete Dynamics in Nature and Society No. 2020 (2020), pp.1-17.
https://search.emarefa.net/detail/BIM-1153616
American Medical Association (AMA)
Li, Chao& Qiu, Zhijian. Optimal Contracts for Agents with Adverse Selection. Discrete Dynamics in Nature and Society. 2020. Vol. 2020, no. 2020, pp.1-17.
https://search.emarefa.net/detail/BIM-1153616
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1153616