The Mirrlees-Problem revisited

Müller, Holger M.

Preview

PDF
dp97_43.pdf - Published
Download (1MB)

URL:	https://ub-madoc.bib.uni-mannheim.de/2886
URN:	urn:nbn:de:bsz:180-madoc-28868
Document Type:	Working paper
Year of publication:	1997
The title of a journal, publication series:	Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume:	97-43
Place of publication:	Mannheim
Publication language:	English
Institution:	School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series:	Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject:	330 Economics
Subject headings (SWD):	Agency-Theorie , Anreizsystem , Wahrscheinlichkeitsrechnung , Theorie
Abstract:	Optimal incentive schemes need not be complicated. In a hidden action model with lognormally distributed output, Mirrlees (1974) shows that the first-best outcome can be approached arbitrarily closely by a suitably chosen sequence of step functions. The present paper shows that this result extends to any probability distributiuon that satisfies two conditions: 1) a convexity condition which ensures that the first-order approach is valid, and 2) a likelihood ratio condition which implies that low output values are a reliable signal that the agent has shirked. Both conditions are met by the normal, lognormal, gamma, beta, chi-squared, Weibull, t-, and F-distribution.
Additional information: