Econometrica Vol. 85 No. 3 2017
Existence of Optimal Mechanisms in Principal-Agent Problems
Abstract
We provide general conditions under which principal-agent problems admit mechanisms that are optimal for the principal. Our result covers as special cases those in which the agent has no private information – i.e., pure moral hazard – as well as those in which the agent’s only action is a participation decision – i.e., pure adverse selection. We allow multi-dimensional actions and signals, as well as both …nancial and non-financial rewards. Beyond measurability, we require no a priori restrictions on the space of mechanisms. Consequently, our optimal mechanisms are optimal among all measurable mechanisms. A key to obtaining our result is to permit randomized mechanisms. We also provide conditions under which randomization is unnecessary.
- DOI
- 10.3982/ecta12340
- Volume
- 85
- Issue
- 3
- Pages
- 769-823
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref