Agency Contracts under Maximum-Entropy
| Autor: | Óscar Gutiérrez, Vicente Salas-Fumás |
|---|---|
| Rok vydání: | 2021 |
| Předmět: |
Mathematical optimization
likelihood ratio Computer science Moral hazard Science QC1-999 Worst-case scenario General Physics and Astronomy ComputingMilieux_LEGALASPECTSOFCOMPUTING Astrophysics agency relationship Article Agency relationship 0502 economics and business Agency (sociology) First-order approach 050207 economics 050205 econometrics maximum-entropy Physics Principle of maximum entropy 05 social sciences worst-case scenario Likelihood ratio QB460-466 moral hazard Transformation (function) Principal (commercial law) first-order approach Maximum entropy probability distribution Maximum-entropy Probability distribution Affine transformation |
| Zdroj: | Entropy Volume 23 Issue 8 Zaguán. Repositorio Digital de la Universidad de Zaragoza instname Entropy, Vol 23, Iss 957, p 957 (2021) |
| ISSN: | 1099-4300 |
| Popis: | This article proposes the application of the maximum-entropy principle (MEP) to agency contracting (where a principal hires an agent to make decisions on their behalf) in situations where the principal and agent only have partial knowledge on the probability distribution of the output conditioned on the agent’s actions. The paper characterizes the second-best agency contract from a maximum entropy distribution (MED) obtained from applying the MEP to the agency situation consistently with the information available. We show that, with the minimum shared information about the output distribution for the agency relationship to take place, the second-best compensation contract is (a monotone transformation of) an increasing affine function of output. With additional information on the output distribution, the second-best optimal contracts can be more complex. The second-best contracts obtained theoretically from the MEP cover many compensation schemes observed in real agency relationships. |
| Databáze: | OpenAIRE |
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